The ultimate vindication of Republican supply-side economics

[itfitzme]

Add some useful information. I'm begging you too, because in my experience, the nature of things is generally somewhere in between the two opposing opinions.

but your experience is based on a high perceptual IQ and a conceptual IQ in the profoundly retarded range. Hence, your childish, prove it prove it as if simple scientific macro economic experiments with all variables constant except one were possible.

Ad hominum b s. Can't provide any facts, call everyone a "liberal".

Clearly you are clueless what econometrics is or you wouldn't be so stupid as to think that all variables are constant except one.

 

[EdwardBaiamonte]

Clearly you are clueless what econometrics is or you wouldn't be so stupid as to think that all variables are constant except one.

if I said all variables are constant except one I'll pay you $10,000. Bet or run away with your liberal tail between your legs once again.

 

[Widdekind]

SSI and Medicare is self funded through FICA taxes. SSI is an insurance program. We pay into it and we are due the benefits... the entire problem off SSI burning through it's surplus is solvable simply by increasing the FICA tax.

Interest, SSI, & MC will require half of US GDP within a few decades; to cover those costs, will require increasing Taxes. At that time, the US population will be "old, senile, & sickly", burdening their few children with (ironically) "progressive" Tax-rates >50%, and owing trillions of dollars to numerous foreign nations.

HowStuffWorks Videos "Life Clips: Komodo Dragons Hunt Buffalo"​

 

[itfitzme]

Clearly you are clueless what econometrics is or you wouldn't be so stupid as to think that all variables are constant except one.

if I said all variables are constant except one I'll pay you $10,000. Bet or run away with your liberal tail between your legs once again.

experiments with all variables constant except one

I didn't say it. You said it.

 

[EdwardBaiamonte]

Oh, and the entire problem off SSI burning through it's surplus is solvable simply by increasing the FICA tax. Another solution is simply to reduce benefits. A third is to do what they have done, increase the retirement age.

gee whiz, maybe they could pay off the 16 trillion too by raising taxes, reducing benefits, or increase eligibility requirements. Good thing you're here to point these things out to us.

Of course the best way to fix it is to privatize it so liberals can't steal and waste the money. 15% of our income in a private accounts would make us all millionaires, whereas with the liberal program we get dog food money if we live long enough to collect a penny.

 

[itfitzme]

SSI and Medicare is self funded through FICA taxes. SSI is an insurance program. We pay into it and we are due the benefits... the entire problem off SSI burning through it's surplus is solvable simply by increasing the FICA tax.

Interest, SSI, & MC will require half of US GDP within a few decades; to cover those costs, will require increasing Taxes. At that time, the US population will be "old, senile, & sickly", burdening their few children with (ironically) "progressive" Tax-rates >50%, and owing trillions of dollars to numerous foreign nations.

HowStuffWorks Videos "Life Clips: Komodo Dragons Hunt Buffalo"​

Yeah, but there sure will be a shit load of demand for the labor.

We could always go the Soilent Green or Logan's Run direction.

Or do you suppose that the economy will change? How about increased efficiency driven by increased demand, and solved by the free market entrepreneurs?

Where you you come up with 50%?

Oh, and you're point is meaningless in terms of my comment. You pondered why SSI is "mandatory" and why defense spending is "discretionary". I pointed out the possibility that it is because it is funded by FICA taxes. FICA taxes aren't going to solve all the other spending. Really, you have to be able to separate things out from each other. If you don't, you just end up in some manic conspiracy theory place where everything is connected.

"Interest, SSI, & MC will require half of US GDP within a few decades" Try doing a prediction like that on the stock market, three decades out. Really, it's not predictable three decades out based on past trends. Funny thing about that.

Do you realize how much work that will be for labor? That will be full employment, for sure.

You don't suppose that output and prices will adjust, do ya'?

 

[itfitzme]

The claim is made "tax cuts cannot be blamed for a bad economy"

Taxes "take" Money out of economies

the only thing worse, for an economy, than Government... is crime & thievery, against which Governments are instituted, to "protect & serve" markets

Go back to your circular flow diagram. Gov't is part of the economy. They don't take money out of it, they are part of it. There is no outside of the economy. The world economy is a closed system.

 

[itfitzme]

Oh, and the entire problem off SSI burning through it's surplus is solvable simply by increasing the FICA tax. Another solution is simply to reduce benefits. A third is to do what they have done, increase the retirement age.

gee whiz, maybe they could pay off the 16 trillion too by raising taxes, reducing benefits, or increase eligibility requirements. Good thing you're here to point these things out to us.

Of course the best way to fix it is to privatize it so liberals can't steal and waste the money. 15% of our income in a private accounts would make us all millionaires, whereas with the liberal program we get dog food money if we live long enough to collect a penny.

You are completely out of touch with reality. I say SSI is paid for by FICA taxes. I mention three ways that it can be solved, in general.

You start talking about paying of the government debt by raising taxes.

What the F are you talking about?

 

[itfitzme]

Oh, and the entire problem off SSI burning through it's surplus is solvable simply by increasing the FICA tax. Another solution is simply to reduce benefits. A third is to do what they have done, increase the retirement age.

gee whiz, maybe they could pay off the 16 trillion too by raising taxes, reducing benefits, or increase eligibility requirements. Good thing you're here to point these things out to us.

Of course the best way to fix it is to privatize it so liberals can't steal and waste the money. 15% of our income in a private accounts would make us all millionaires, whereas with the liberal program we get dog food money if we live long enough to collect a penny.

Oh, so now we are all going to be millionaire. Yeah, that makes sense. Sounds a bit like that "we are all going to be millionaires" liberal plan.

 

[itfitzme]

The claim has been made: "Taxes "take" Money out of economies." Of course they do. And if we look at flows taxation and spending by all sectors we must accept the desirable possibility that a government could tax and spend just to the point where there is neither surplus nor a deficit that must be covered by borrowing. And, governments never sit on a surplus for long -- some politicians will "serve" some constituent by seeing to it that the surplus gets spent. THE REAL SITTERS ON MONEY ARE SPECULATORS WHEN THE EXPECT DEFLATION. It only benefits them to "abstain" from both consumption and investment.

The claim has been made that, " Every dollar confiscated in taxes by the government is a dollar not available to save that creates a pool from which other can borrow, is not a dollar available to invest in new businesses, new products, new R & D, is a dollar not available to pay in wages and benefits." Governments do two things with revenues. They pay interest or they spend it. They don't hoard it. Most Americans are deep in debt. A few are among the creditors, domestic and foreign. But these creditors will not find it worthwhile to invest in the US domestic economy in a deflation. In deflation there is insufficient aggregate demand to make new businesses and expanded businesses profitable, except for the venture that can promise a return that outperforms the windfall deflation premium of just holding the cash.

The claim has been made that, " Some money spent by the government can affect the economy positively. ... they can even affect behavior so that revenues increase instead of decrease." We lack buying power, hiring power, and debt-paying power due to deflation set up by 1) net interest drain 2) tight Fed discount window monetary policy 3) outright loan calls and refusal to lend up to what legal reserves would permit. Government spending can increase buying power, hiring power, debt-paying power, but eventually principal and interest must be withdrawn. With all three domestic economy sectors -- household, public goods and domestic production -- today they operate on lent money and each sector must pay back more money than they put in. And the loans are not going to increase productivity, to increase the size of the US production "economic pie." Government deficit spending lasts only long enough to buy votes -- you pay later. But tax cuts also buy votes -- more dollars to keep hoarding! -- but what is not taxed by government is borrowed by government or else paid for by the consumer. Loans are less than the sum of principal and interest and the difference is made up by transfer of equity, of collateral, to the creditors, to the speculators who bet on deflation and want deflation.

That is really excellent. And I so appreciate it.

But there is something that feels a little static about it. I really haven't reached the level that I can precisely describe it, but in the "Loans are less than the sum of principal and interest", it seems to be missing something when I consider it in terms of DSGE's description of the endogenous increase in the money supply through the fractional reserve system.

First off, my sense in that, as we track back all the loans and interest to it's original source and repayment, the repayment of the balance goes back into the bank to balance against the reserve upon which it was originated. The interest remains in circulation, paying bank salaries and expenses. So while I agree that the principle plus interest is greater then the original loan, the two do not necessarily equate to some sort of total drain on the money supply.

The place where I get stuck is on the dynamic, long term temporal process of an every expanding money supply through constant regeneration of new loans.

I just don't think we can really speak of the process, in anything but generalities and vaugities, without some specific model to work with.

Other then this little piece of connectivity that needs to be demonstrated, it all makes sense, going from clearly correct to possible, but dependent upon this whole endogenous money supply thing.

I mean, I'm not sure what you mean by "and the loans are not going to increase productivity". If I am to understand it correctly, this is the whole point of the fractional reserve system. The potential for increased productivity sets the stage for the loans which then increase the money supply such that productivity can increase. The only real issue I have is that if there is no perceived potential for increases in productivity, then the process seems to break down as it is not capable of remaining static. There is no steady state condition. And as soon as growth is to low, investors then pull back, and start paying down the loans, shrinking the money supply.

Oddly, while I am not exactly sure I agree with you in the middle, we seem to get to the same end.

And if I am to guess at it, I'd say that it just smacks at the whole thing that resulted in this last recession.

 

[itfitzme]

THE REAL SITTERS ON MONEY ARE SPECULATORS WHEN THEY EXPECT DEFLATION. It only benefits them to "abstain" from both consumption and investment.

More generally, when they expect falling NGDP. The idea behind what you're saying is that suddenly the return on money (through expected deflation) increases. So it's now worth foregoing consumption and instead holding money, at the margin, because now it gives you a little bit extra future consumption. But if NGDP is fixed (or growth in fixed), then any fall in the price level (due to productivity gains) is accompanied by an increase in real output. So if NGDP is expected to remain on target, it's not actually worth hoarding money, at the margin. You don't have to forego consumption now to be rewarded with more in the future since you're already getting more by the higher real output, so you should consume the same amount now as you already planned. So NGDP remaining on target doesn't distort intertemporal decisions, irrespective of what's happening to the price level.

Well, why didn't you just say this earlier on. This is the crux of the issue that I've had from the start. The first step that I had to resolve was if, in fact, the money supply was dependent purely on the factional reserve system of endogenous money creation. Thank you for that. Now bridging the gap between this and your NGDP concept would be great, except I'm must no up to trying to reinvent the equation.

If, in fact, you are addressing the very concern that Monetarist has so eloquently described, the concern that now just bugs me but for which I can only perceive in intuition, then yes, I do agree with your NGDP targeting idea. Let's just say I agree in concept.

It would be so nice if someone could just DO THE F'IN MATH of it. I mean, look, I'm really tired of trying to work it out by myself. Winndekind seems to be a potential source of getting there sometime or another, if he doesn't drift off into some manic frenzy of maginal conspiracy theory concepts where bribes and the black market account for the error.

Isn't there any source of definitive feed back equations that nails this endogenous money supply thing down to the floor? And maybe something that doesn't require a PhD in mathematics? Good god, it's just accounting, isn't it?

(Sorry, the very thought of it, that the very nature of the system drives investment bubbles that are destined to crash just pisses me off. On the other hand, who are we to think that we see something that the all the brilliant minds of the Federal Reserve as somehow blissfully unaware of?)

 

[itfitzme]

The claim has been made: "Taxes "take" Money out of economies." Of course they do. And if we look at flows taxation and spending by all sectors we must accept the desirable possibility that a government could tax and spend just to the point where there is neither surplus nor a deficit that must be covered by borrowing. And, governments never sit on a surplus for long -- some politicians will "serve" some constituent by seeing to it that the surplus gets spent. THE REAL SITTERS ON MONEY ARE SPECULATORS WHEN THE EXPECT DEFLATION. It only benefits them to "abstain" from both consumption and investment.

The claim has been made that, " Every dollar confiscated in taxes by the government is a dollar not available to save that creates a pool from which other can borrow, is not a dollar available to invest in new businesses, new products, new R & D, is a dollar not available to pay in wages and benefits." Governments do two things with revenues. They pay interest or they spend it. They don't hoard it. Most Americans are deep in debt. A few are among the creditors, domestic and foreign. But these creditors will not find it worthwhile to invest in the US domestic economy in a deflation. In deflation there is insufficient aggregate demand to make new businesses and expanded businesses profitable, except for the venture that can promise a return that outperforms the windfall deflation premium of just holding the cash.

The claim has been made that, " Some money spent by the government can affect the economy positively. ... they can even affect behavior so that revenues increase instead of decrease." We lack buying power, hiring power, and debt-paying power due to deflation set up by 1) net interest drain 2) tight Fed discount window monetary policy 3) outright loan calls and refusal to lend up to what legal reserves would permit. Government spending can increase buying power, hiring power, debt-paying power, but eventually principal and interest must be withdrawn. With all three domestic economy sectors -- household, public goods and domestic production -- today they operate on lent money and each sector must pay back more money than they put in. And the loans are not going to increase productivity, to increase the size of the US production "economic pie." Government deficit spending lasts only long enough to buy votes -- you pay later. But tax cuts also buy votes -- more dollars to keep hoarding! -- but what is not taxed by government is borrowed by government or else paid for by the consumer. Loans are less than the sum of principal and interest and the difference is made up by transfer of equity, of collateral, to the creditors, to the speculators who bet on deflation and want deflation.

Okay, fine, "The claim has been made: "Taxes "take" Money out of economies." Of course they do." And in the context you put it, you are correct. And it is a closed system, on global terms. The governments are simply a subset of the complete economy, there is no outside. Which, of course, is why you then say, "Governments do two things with revenues. They pay interest or they spend it. They don't hoard it." And OMG, it isn't really taken out of the system.

But the real issue that I have, with being clear on it, is knowing that I have the full closed set of mutually exclusive objects.

I've got total consumer credit at $2,524,662,150,000.00. I've got the Debt Held By the Public at $10,435,856,848,935. Somewhere, there is an accounting of the private business debt. (Federal Reserve data) And if I am to understand monetarism, it all just balances, to the penny, against savings somewhere. It is just accounting, after all, except for that gosh darned velocity of money thing. (Can we ignore that in the full accounting?)

So where exactly is all that savings accounted?

 

[itfitzme]

Our economy would boom if BO eliminated the corporate tax altogether as Ireland proved by just lowering it. Its the ultimate vindication of supply-side economics.

Ireland currenly has 15% unemployment and a economy that is 15% below its peak and its still in recession, not to menion America already has one fo the lowers corporate taxes sin the world.
But dont let facts get in the way of conservative stupidity

Here is the thing.

The OP is clearly just stupid. The 12.5% corporate tax rate in Ireland has been around for a while. They don't just lower it.

I'll go with "Ireland currently has 15% unemployment", though a link would be nice because, as you may have noticed, you cannot believe anything you read here. Sticking a number to it adds a bit of credibility. But let's face it, even then, the likes of Ann Coulter seem to have learned in high school that they can get away with bs data and false references.

On the lowest corporate tax rates, the first order information is simply Wikipedia. It's quality is higher then most print encyclopedias. And it doesn't have the tax rate as near lowest. If there is something more accurate or complicated then what it has, maybe the thing is to go edit it. At least, give some reference.

A curios consideration is, if Ireland has the lowest corp tax rate and unemployment higher then the US, what does that say?

The main point is, though, that apparently the issue isn't corporate tax rates. Apparently, it just doesn't matter how low the rates are, every country got hit by a recession. And if tax rates aren't the cause, why believe they are a solution?

 

[itfitzme]

So basically, you can't demonstrate anything.

well, the US experience must demonstrate something????

the recent switch to capitalism in China must demonstrate something?

Cuba /Florida must demonstrate something???

East/West Germany must demonstrate something.

You are not the US, China, Cuba/Florida or East/West Germany. Those do demonstrate things, none of which seems to be within the realm of your comprehension. You, on the other hand, demonstrate nothing. I am still waiting for that Freidman quote where he says the Great Depression was caused by "not following the rules of the gold standard?.

China, by the way, didn't switch to capitalism. It switched to a mixed economy by first privatizing the smaller farms. China is still a socialist regime.

And while considerably different than China, the US is a mixed economy.

 

[itfitzme]

What the f are you talking about? The bursting of the housing bubble was primarily the result of investment flipping on second, third and fourth single family homes.

If you read Reckless Endangerment you'll see it blamed over 400 pages on Fan /Fred. But our best economists and newspapers on right and left blame it on liberal government.

"First consider the once controversial view that the crisis was largely caused by the Fed's holding interest rates too low for too long after the 2001 recession. This view is now so widely held that the editorial pages of both the NY Times and the Wall Street Journal agree on its validity!"...John B. Taylor( arch conservative, author of the Taylor Rule)


" The Federal reserve having done so much to create the problems in which the economy is now mired, having mistakenly thought that even after the housing bubble burst the problems were contained, and having underestimated the severity of the crisis, now wants to make a contribution to preventing the economy from sinking into a Japanese Style malaise....... - "Joseph Stiglitz"

By god, finally, after hundreds of posts, you managed to say something that resembles intelligence. To bad that the only intelligent parts are quotes of what someone else said. Even then, they are simply opinions, not facts. Thankfully, they are at least intelligent opinions.

Got a date for those opinions? Got a link?

Here is some intelligent facts.

Real Estate Investors, the Leverage Cycle, and the Housing Market Crisis - Andrew Haughwout, Donghoon Lee, Joseph Tracy, Wilbert van der Klaauw, Staff Report no. 514 September 2011

None of which is contradictory to the quotes by Stiglitz or Taylor.

And seeing at you stick every comment by a monetarist into the category of liberal, it is clear that the Stiglitz and Taylor quotes are the only intelligent parts of your post. I am sure that neither of them refer to the Federal Reserve as "liberal government".

And given your recommendation of "Reckless Endangerment " I am sure that it is either a) a piece of conspiracy theory crap or b) completely misrepresented by you, as you have Freidman.

 

[itfitzme]

Revenues did not decrease after the Bush tax legislation of 2001 and 2003

that is not factually true -- Bush cut Taxes, and Government "revenues" returned to what they had been before Clinton; meanwhile Government spending remained what it had been, during-and-before Clinton

• spending was always high
• Clinton made Taxes (on some) even higher
• Bush eliminated those Taxes
• old deficits re-appeared

(Some) people got tired of paying Taxes, Bush was elected, Bush reduced (their) Taxes, old deficits re-emerged. Besides 9/11, Bush did not create the "spending programs", only stopped (some) people from paying for them. Blaming Bush uni-laterally (reducing Taxes), for a bi-lateral problem (Taxes & spending), is not "fair".

In the following chart, half of the "green" represents Military spending, the other half "discretionary" spendings. Within a few decades, the US population will be "old, senile, sickly, and deep in debt to everybody else":

anybody got better than "eat, drink, & be merry..." ? What does it mean, that Social-Security & Medicare are "mandatory", but defense is "discretionary" ?

That is a 2005 chart, a bit outdated. Can't we come up with something a bit more current.

I am tempted to take your word for it, that Bush cut Taxes, and Government "revenues" returned to what they had been before Clinton.

But, "meanwhile Government spending remained what it had been, during-and-before Clinton" I don't see it at so. Spending, on a per capita basis did increase during the Bush admin, to a level higher then decades of previous administrations.

I'm not going to post the friggin chart again. It's just the historical budget data as take from the government website. It is just Census Bureau population data. It is just BEA CPI data. There is nothing special about it. And what it says is that, in spite of all the clamoring, the US government, on a real dollar, per capita basis was simply not increasing for decades.

I say "Bush admin" simply as a marker of time. The fact is that Congress approves the budget. The presidency proposes and signs it. In the end, it is all of the government leaders that agree to it, in its parts and in its whole.

None of which matters a hill of beans if we are talking about normative economics. The economy doesn't give a carp why they decided on that budget, just that they did. The markets don't care who did it or who's to blame.

What remains as a fact is simply that deficit = outlays - revenues. What remains as a fact is that there are fiscal multipliers. What remains as a fact is that tax cuts tend to be accompanied by spending increases. The Bush admin had both.

I like the %GDP view. It does eliminate any nominal to real adjustment. Still, underlying GDP is labor utilization, which varies. As such, I still prefer just real dollar per capita.

The problem with these kind of projections, as shown in the chart, is they assume everything will be the same in the future. It won't be. They serve as a clear warning that things are not sustainable, but that's it. And people never cease to be underwhelmed as dire future catastrophes turn out to just not pan out in the long run. Why? Because the economies, governments, and the societies they serve, are dynamic. You would think by now that people would have figured out that, if it ain't sustainable then it won't happen. That's what "not sustainable" means.

It would be interesting to know how close those numbers are, the 2007 projection from 2005, even the 2012 projection from 2005.

And frankly, I tend to believe the monetarist, a view that isn't liberal or conservative, but just accepts the facts of the accounting of the money. It really didn't matter what the Bush admin and the Federal Reserve did. In fact, I applaud them for stabilizing it for so long.

Eventually the system seems just designed to crash. The system seems fundamentally dependent of growth. It can't handle simple sustainability. If the monetarist is right, as soon as the economy settles into a sustainable level, investors decide to pull all the money in. And I don't see how that is a federal reserve or a fiscal issue. The only exception is DSGE's targeted NGDP. Unless DSGE is right, then the system may actually be dysfunctional in the long run. But without a better description or sufficient proof of it, and I know DSGE knows what is reasonable as "proof", I just have to wonder if it still doesn't miss the target. How, I ask, does NGDP targeting solve this balance sheet recession issue? I'm not saying it won't, I'm just not seeing it if it will.

In the long run, output goes to full employment. The problem is that, as soon as it does, it crashes because investors want more than the returns of growth at full employment. Is that really it, if they don't see the growth they want, the force relative deflation? Really?

 

[Widdekind]

Spending, on a per capita basis did increase during the Bush admin, to a level higher then decades of previous administrations.

... due to 9/11, Afghanistan, Iraq, etc.

Congress approves the budget. The presidency proposes and signs it. In the end, it is all of the government leaders that agree to it, in its parts and in its whole.

compromises ? "spending" Democrats wanted, plus "tax cuts" Republicans wanted ? between the "one hand and the other", US deficits increased ? Citing Alan Greenspan's book Age of Turbulence,

Greenspan criticizes President George W. Bush, Vice President Dick Cheney, and the Republican-controlled Congress for abandoning the Republican Party's principles on spending and deficits. Greenspan's criticisms of President Bush include his refusal to veto spending bills, sending the country into increasingly deep deficits, and for "putting political imperatives ahead of sound economic policies". Greenspan writes, "They swapped principle for power. They ended up with neither.

Naively, Greenspan seemingly suggests, that Pres. Bush compromised with "spending Democrats", in order to maintain political popularity (which he evidently perceived he could not gain, without "buying friends" de facto).

If the monetarist is right, as soon as the economy settles into a sustainable level, investors decide to pull all the money in... The only exception is DSGE's targeted NGDP.

if

GDP = MV = PQ ---> constant​

then

investors make a "run on banks", withdrawing Money, and causing credit-based economies to collapse (M --> 0)​

? (everybody falls back on private notes)

 

[itfitzme]

Spending, on a per capita basis did increase during the Bush admin, to a level higher then decades of previous administrations.

... due to 9/11, Afghanistan, Iraq, etc.

Is that based on having examined the time series budget details or are we just surmising here?

Congress approves the budget. The presidency proposes and signs it. In the end, it is all of the government leaders that agree to it, in its parts and in its whole.

compromises ? "spending" Democrats wanted, plus "tax cuts" Republicans wanted ? between the "one hand and the other", US deficits increased

I wouldn't be so quick to assume that all Republicans want only tax cuts and all Democrats want only spending increases. It's politics. And it's very helpful when he other guy is championing something that you want anyways. Then you can just focus one the thing you want that no one else is championing. I sure wouldn't assume anything. All we really know is, as a black box, Congress did what they did.

If the monetarist is right, as soon as the economy settles into a sustainable level, investors decide to pull all the money in... The only exception is DSGE's targeted NGDP.

if

GDP = MV = PQ ---> constant​

then

investors make a "run on banks", withdrawing Money, and causing credit-based economies to collapse (M --> 0)​

? (everybody falls back on private notes)

Sure, if it was only that simple. But no, it is more like d/dt(GDP(t))<d/dt(GDP(t-1)), though, unfortunately, it's just not all that observable in the aggregate, with the granularity and noise.

This last recession, if you look at consumer credit, it seems that is was d/dt(consumer credit(t))<d/dt(consumer credit(t-1)) that precipitated the fall of in GDP.

What we do know is that, in this last recession, when housing speculators saw they were not going to get the returns that they were expecting, they began walking away from the properties and mortgages. Once enough start walking away, it causes values to decelerate even more, fueling more investment abandonment.

Better stated, when consumer credit decelerated, then GDP began to decelerate. Once that happens, like deflation, it becomes a self-sustaining collapse. I see no reason why we shouldn't abduct, from the deflationary spiral phenomena into GDP. Businesses and investors, recognizing a decline in growth, pull back fueling a decline in growth. Their expectation is realized by their very actions.

M doesn't need to go towards zero, it just needs to stop increasing. Remember, the underlying base line is a constantly increasing population, efficiency, and standard of living. All that has to happen, in the case of deflation, is for the money supply to not increase or fail to increase the necessary amount to account for increasing population, efficiency, and standard of living. But now, try and figure out what the right amount of increase is.

Care to guess what the Fed Reserve model is? Surely they have a some sort of complex model or models, like the IPCC climate models, to determine what the money supply is suppose to be at, at any given time.

 

[Widdekind]

Is that based on having examined the time series budget details or are we just surmising here?

in that chart, after 2001, the "green" band thickened appreciably, whilst no others did; the "green" band includes Military spending, presumably increased after 9/11 ?

I wouldn't be so quick to assume that all Republicans want only tax cuts and all Democrats want only spending increases. It's politics.

i edited the post, including comments from former Federal Reserve Chairman Alan Greenspan, who observed that the Bush administration compromised economics for politics

when consumer credit decelerated, then GDP began to decelerate.

individuals stop borrowing (because the assets they would buy on credit won't appreciate more than the IR); reduced borrowing reduces the "money Multiplier" effect, leaving banks with excess Reserves, and leaving the economy with reduced (credit-)Money supply ?

 

[itfitzme]

Is that based on having examined the time series budget details or are we just surmising here?

in that chart, after 2001, the "green" band thickened appreciably, whilst no others did; the "green" band includes Military spending, presumably increased after 9/11 ?

Okay, I see it.

I wouldn't be so quick to assume that all Republicans want only tax cuts and all Democrats want only spending increases. It's politics.

i edited the post, including comments from former Federal Reserve Chairman Alan Greenspan, who observed that the Bush administration compromised economics for politics

That the increase in expenditures was primarily military build up, it doesn't seem to speak to a compromise on spending for the sake of getting tax cuts though. If the increase in spending was primarily an increase in military spending, it kind of kills the "Dems spend and Repub cut". The military spending of Afghanistan and Iraq wasn't much of a partisan issue. Iraq more so, definitely not Afghanistan.

I'll try to get back to reading your edited post.

when consumer credit decelerated, then GDP began to decelerate.

individuals stop borrowing (because the assets they would buy on credit won't appreciate more than the IR); reduced borrowing reduces the "money Multiplier" effect, leaving banks with excess Reserves, and leaving the economy with reduced (credit-)Money supply ?

There are two sources of money. One is the Federal Reserve fractional reserve banking system. It seems to depend on a constant recirculation of ever increasing business loan to increase the money supply. The second appears to be simple consumer credit.

We can look at them two ways, as either demand or as money supply. It really doesn't matter, they are both the same thing. Money in circulation is demand, price and quantity.

It appears, looking at consumer credit, that it began to decelerate in November of '07. It is kind of hard to say if GDP began decelerating in October, November or December. It is quarterly and I am not sure about the precision of available monthly data. At the very least, the two decelerated simultaneously.

Here is consumer revolving credit %chg, %Chg in CPI and unemployment. Unemployment has been shifted down to get it into a spot where it can be compared. The curve remains the same.

Unemployment began rising before the recession began. Consumer credit is a bit noisy, but it appears as if it began decelerating before the official start of the recession, perhaps along with the increase in unemployment. That all really makes sense, so it's not a stretch by any standard.

At that point, it seems reasonable to conclude that once started, reduced demand began a cascade of business cutbacks, in business credit and employment. It all just starts feeding back on itself in a balance sheet recession. Employment begins to fall reducing demand. Consumers start paying off credit, rather than borrowing. Businesses start looking for ways to save money, rather then expanding, paying off their business loans.

As business credit is the source of the money supply, if businesses start paying off loans rather then taking them out, it only makes sense that the money supply would stop increasing. If they pay them off, then it decreases. Just as well, as consumer credit acts as an effective additional source of money supply, then consumers not accumulating credit stops the effective money supply from increasing. And paying it off decreases the effective supply. In the long view, which I haven't posted here, consumer credit has constantly accumulated for decades.

There is an issue of magnitudes, but every bursting damn begins with a small crack. Eventually, demand and business loans fell so greatly that we went into a deflationary spiral.

All in all, combined with “Flip This House”: Investor Speculation and the Housing Bubble - Liberty Street Economics, it spells out the entire process of the Dec '07 recession, beginning with the flippers and cascading vertically through the markets single family home markets, upward through single family home products, upward through the banking system, horizontally from flippers to owner occupied homes, vertically on these through consumer products, then back around through the labor force. That seems to be the best take on it.

Oh, and to kind of nail the lid on the coffin, see if you can find

The Great Depression as a Credit Boom Gone Wrong.pdf

Same effect. And frankly, I don't see it as a fiscal issue. It really doesn't matter what the Repubs and Dems in office did. The fiscal tools simply cannot address this fundamental issue directly. It seems that the problem was beginning as early as '05 when bankruptcy laws were tightened up. It may be that it was beginning as early as '00. My sense is that kept a process stabilized, for years, that was just trying to crash. And when it did, it has been propped up for so long that it fell hard.