Holy Debt, Batman!

[Samus]

Yahoo! News Story (http://story.news.yahoo.com/news?tmpl=story&ncid=514&e=4&cid=514&u=/ap/20030205/ap_on_go_ca_st_pe/debt_limit)

The lead: "The government is expected to hit the $6.4 trillion ceiling on the national debt around Feb. 20, the Treasury Department said Wednesday, renewing its call for Congress to boost the government's borrowing authority."

$6.4 trillion? Am I the only one that thinks this is a bit too much debt for our country to be floating?

Does anyone know of a web site that provides a breakdown of that debt: how much is foreign, how much is in various Treasury bills, bonds, etc. and how much we pay on debt interest every year?

Inquiring minds want to know.

[Samus]

Look at that, I answered my own question

Debt FAQ (http://www.brillig.com/debt_clock/faq.html)

"The National Debt on January 1st 1791 was just $75 million dollars. Today, it rises by that amount every dozen hours or so."

sheesh...

[aerocontrols]

You might also look here

Debt FAQ (http://www.ustreas.gov/education/faq/markets/national-debt.html#q5)

[arcticpenguin]

Well I'm glad we have a fiscally conservative Republican administration in charge so that they can put a lid on this right away. If those liberal Democrats got a hold on power, they'd spend us into the poorhouse.

[Drooper]

For more light reading:

http://www.randi.org/vbulletin/showthread.php?s=&threadid=12387&highlight=national+debt

[Michael Redman]

Nice avatar, dbw. ;)

[Plutarck]

Originally posted by arcticpenguin
Well I'm glad we have a fiscally conservative Republican administration in charge so that they can put a lid on this right away. If those liberal Democrats got a hold on power, they'd spend us into the poorhouse.

"My Favorite Comment Of The Month" Award Winner, right here.

ROFL

[subgenius]

Originally posted by arcticpenguin
Well I'm glad we have a fiscally conservative Republican administration in charge so that they can put a lid on this right away. If those liberal Democrats got a hold on power, they'd spend us into the poorhouse.
Oh the hypocricy (of the Reps).
Tax and spend bad. Borrow and spend good.
Deficits under Dems bad. Deficits under Bush no big deal.

[Samus]

Originally posted by Michael Redman
Nice avatar, dbw. ;) Yeah, I was a little apprehensive to use it when I saw that yours was Gromit, but I didn't really have any better ones and I really like this one. No cheese, Gromit!

arcticpenguin wrote:
Well I'm glad we have a fiscally conservative Republican administration in charge so that they can put a lid on this right away. If those liberal Democrats got a hold on power, they'd spend us into the poorhouse. I have to admit, I got a chuckle out of this. I don't think political party really matters to be honest; both parties want to spend every dime they can plus some. It's just their spending priorities that differ. Cutting taxes would, in theory, force the federal government to spend less. In reality, all it does it create deficits.

[pgwenthold]

Originally posted by subgenius

Oh the hypocricy (of the Reps).
Tax and spend bad. Borrow and spend good.
Deficits under Dems bad. Deficits under Bush no big deal.

Even worse. Balanced budget under Dems bad. Deficits under Republicans (remember borrow and spend Reagan?) no big deal.

Tax and spend is bad because the money goes to social programs. Borrow and spend is good because the money goes to defense. It's an issue of priorities.

[Michael Redman]

Originally posted by dwb
No cheese, Gromit!Hey, now, let's not get too carried away with this. :p

[Michael Redman]

Originally posted by pgwenthold
Tax and spend is bad because the money goes to social programs. Borrow and spend is good because the money goes to defense. It's an issue of priorities. Borrow and spend is sure a heck of a lot easier, politically. "We won't raise your taxes! (Well let your kids pay for it, plus interest!)"

[pgwenthold]

Originally posted by Michael Redman
Borrow and spend is sure a heck of a lot easier, politically. "We won't raise your taxes! (Well let your kids pay for it, plus interest!)"

But if you look at how it works, it is really funny. They both spend a lot, albeit with different priorities. However, democrats try to fund their spending initiatives whereas republicans just borrow it.

Yet, at the end, the republicans are the ones who claim they are fiscally responsible.

[dsm]

Originally posted by Michael Redman
Borrow and spend is sure a heck of a lot easier, politically. "We won't raise your taxes! (Well let your kids pay for it, plus interest!)"

But is that a valid statement? Don't they wind up having to raise taxes just to pay the interest on the debt?

:confused:

[pgwenthold]

Originally posted by Michael Redman
Borrow and spend is sure a heck of a lot easier, politically. "We won't raise your taxes! (Well let your kids pay for it, plus interest!)"

Oh, one other thing. We are deluding ourselves if we think anyone is ever going to pay off the debt.

[Plutarck]

Originally posted by pgwenthold


Even worse. Balanced budget under Dems bad. Deficits under Republicans (remember borrow and spend Reagan?) no big deal.

Tax and spend is bad because the money goes to social programs. Borrow and spend is good because the money goes to defense. It's an issue of priorities.

More clearly:

Republicans: Whatever the Democrats are doing is bad.
Democrats: Whatever the Republicans are doing is bad.

The true key difference in fiscal policy is the Republicans at least pretend to want small government. The Democrats pretty much don't even pretend.

So you basically get f*cked the same way, it's just that their arguments for why it's OK differ.

[pgwenthold]

Originally posted by Plutarck
The true key difference in fiscal policy is the Republicans at least pretend to want small government. The Democrats pretty much don't even pretend.


Why is it preferable to pretend to want a small government? Is this all part of the "It is more important to look good than to be good" attitude of the 80s?

Call me crazy, but I think that if two people are doing the same thing, something I may not like but won't change, I'd prefer the person to at least be honest and admit it instead of claiming one thing and doing another.

From a democratic POV, one would say that while both parties want (and need) big government, at least the democrats don't deceive the public about it.

[Plutarck]

Originally posted by pgwenthold


Oh, one other thing. We are deluding ourselves if we think anyone is ever going to pay off the debt.

I know I won't pay off my debt! Well, I will - it'll just be through more debt.

If I actually go through with my real estate investing plans I'll accumulate debts like some small countries, if I'm lucky.

The problem, of course, is not the debt itself, but what they are buying with the money. Government tends to be just a weeee bit wasteful with their expenditures, such that the expenditures will not pay for themselves - unlike proper real estate investing, for instance.

In general, buying Unproductive Depreciating assets with borrowed money is Bad, Bad, Bad.

I wonder, since the politicians use the money to buy votes, were do they put Bought Votes on their balance sheet? Is it an Asset or a Liability? Given their wonderfully clear, straight-forward, and honest accounting practices, I'm sure they'll figure out the most accurate way to classify them.

*wipes sarcasm from lips*

[dsm]

Originally posted by pgwenthold

Why is it preferable to pretend to want a small government?


The word "small" needs a more precise definition here.

What percentage of GNP currently goes to the government in taxes and the like? What percentage would be the dividing line between small and large?

[Badger]

What's the GDP of the US? How's the debt compare to that?

By rough calculation, it looks like each US citizen owes about $25000.00 to pay off the debt.

[Plutarck]

Originally posted by pgwenthold


Why is it preferable to pretend to want a small government?

Because people like to hear it, apparently, and a promise of something you know you won't get is to many preferable to actually being told you won't get it. At least a man can dream.

Is this all part of the "It is more important to look good than to be good" attitude of the 80s?

That was just for the 80s?

Call me crazy, but I think that if two people are doing the same thing, something I may not like but won't change, I'd prefer the person to at least be honest and admit it instead of claiming one thing and doing another.

I do value such honestly - which is usually why I dislike politicians so much. They tend to be...well, big fat stinking liars.

From a democratic POV, one would say that while both parties want (and need) big government, at least the democrats don't deceive the public about it.

I agree, though while democrats seem to me to be relatively more honest about their stance on the size of government, they still rarely if ever will admit it or actually say so. So it becomes a Lesser of Two Liars sort of problem.

I only have a relative preference for the republican side because it seems that it would be easier to get someone to do what they say they'll do than to get someone to do something they say they won't. Then again, in politics...

...yeah, so that's why I can't stand either of them.

It's like dealing with car salesman. You want to have a car, you just don't want to buy it from them.

If only there could be some way, theoretically, to vote for someone you truly agreed with...

[Plutarck]

Originally posted by dsm


The word "small" needs a more precise definition here.

What percentage of GNP currently goes to the government in taxes and the like? What percentage would be the dividing line between small and large?
The Sorites Paradox (Heap Paradox) (http://yukon.genie.uottawa.ca/~vlad/heap.html)

Other than that, you're right - I should probably say "smaller". ;)

How small? Well, you take the Night Watchman State, and then maybe you add some of the economically desirable bits, and a little more for safety redundancy and inter-governmental competition.

To be more exacting: The government does things it should not do, and does not sufficiently do things it should do, and on the whole it is larger than it needs to be to do what it should be doing.

[shanek]

Originally posted by arcticpenguin
Well I'm glad we have a fiscally conservative Republican administration in charge so that they can put a lid on this right away. If those liberal Democrats got a hold on power, they'd spend us into the poorhouse.

Is this supposed to be sarcastic? Given that our illustrious president called for $500 billion in new spending during his SOTU address (and how's he going to do that and cut taxes?), I have trouble reading this statement any other way.

[shanek]

Originally posted by Michael Redman
Borrow and spend is sure a heck of a lot easier, politically. "We won't raise your taxes! (Well let your kids pay for it, plus interest!)"

It's not just the kids who pay for it. We pay for it in higher inflation rates.

[shanek]

Originally posted by dsm
What percentage of GNP currently goes to the government in taxes and the like? What percentage would be the dividing line between small and large?

That's not really a valid question. You can, however, compare government spending to GDP (it's about 20%).

Taxation is better compared to National Income. By the way, government takes 48% of the National Income in taxes. Since it only supplies 20% of the GDP, you can see that's a vast descrepancy, and one that is extremely harmful to the economy.

[Plutarck]

Originally posted by shanek


Is this supposed to be sarcastic? Given that our illustrious president called for $500 billion in new spending during his SOTU address (and how's he going to do that and cut taxes?), I have trouble reading this statement any other way.

Dripping, dear friend! Dripping in sarcasm! I nearly slipped and fell and filed a multi-million dollar law suit because of it!

[Plutarck]

Originally posted by shanek


It's not just the kids who pay for it. We pay for it in higher inflation rates.

And even if it didn't cause inflation, we pay for it due to the crowding out effect, which if nothing else means that businesses have to pay larger interest rates to secure investing as the supply of bonds has increased, or depending upon the specifics/viewpoint the supply of investor capital available to businesses decreases.

[a_unique_person]

So how do conservative governments, around the world, get the reputation for being better money managers?

I can find no evidence for the fact. If you dig into the figures at all, an argument can be mounted that they are much worse.

Yet opinion polls show that most people believe conservative governments are better at managing the economy and balancing the books.

[a_unique_person]

Originally posted by shanek


It's not just the kids who pay for it. We pay for it in higher inflation rates.

have you looked at the inflation rates lately?

the real point is that the conservative government is pursuing, just as reagan did, class keynsian economic policies to kick an economy into life.

[shanek]

Originally posted by Plutarck
Dripping, dear friend! Dripping in sarcasm! I nearly slipped and fell and filed a multi-million dollar law suit because of it!

Just making sure... :D

[shanek]

Originally posted by a_unique_person
have you looked at the inflation rates lately?

We're in an economic downturn. What did you expect inflation rates to do? :rolleyes:

[a_unique_person]

Originally posted by shanek


We're in an economic downturn. What did you expect inflation rates to do? :rolleyes:

and massive deficicts.

[corplinx]

Originally posted by a_unique_person


and massive deficicts.

The deficit is 1.9 percent of the GDP. Lowest among the larget 7 economies of the world. The raw number is huge, but I am dismayed by people who don't get the big picture. As big as the raw dollar amount is, its still a drop in the bucket.

[Jon_in_london]

Where do they borrow all this money from?

[Drooper]

Originally posted by Jon_in_london
Where do they borrow all this money from?

You, me, everybody else on this forum.

[Drooper]

Originally posted by shanek


It's not just the kids who pay for it. We pay for it in higher inflation rates.

If you monetise a large debt that might be true. As a universal statement that is not true.

[Drooper]

Originally posted by pgwenthold


Oh, one other thing. We are deluding ourselves if we think anyone is ever going to pay off the debt.

You don't pay it off, you roll it over and let it grow in line with the economy over time.

It is extremely efficient for the Government to borrow and maintain as sensible level of debt and allow it to expand with the size of the economy.

[Drooper]

Originally posted by Badger
What's the GDP of the US? How's the debt compare to that?

By rough calculation, it looks like each US citizen owes about $25000.00 to pay off the debt.

Look at the thread where this has been discussed before. This is answered (I think).

And you don't have to pay off the debt.

[a_unique_person]

Originally posted by Drooper


Look at the thread where this has been discussed before. This is answered (I think).

And you don't have to pay off the debt.

It is just big news when it suits the media, and not worth mentioning at other times.

[a_unique_person]

Originally posted by corplinx


The deficit is 1.9 percent of the GDP. Lowest among the larget 7 economies of the world. The raw number is huge, but I am dismayed by people who don't get the big picture. As big as the raw dollar amount is, its still a drop in the bucket.

As I said earlier, GWB is using classic, liberal, left wing political principals by increasing the deficit in times of economic slow down. Only he and the press would never put it that way. And there is no inflation, despite the deficit.

[Plutarck]

Originally posted by a_unique_person


It is just big news when it suits the media, and not worth mentioning at other times.

Well it suits the media when it suits the political parties enough to make a big fuss about it - just like Social Security. How often do you see news reports about Social Security when some politician isn't behind it?

Lots of issues are like that, really. Politicians, ever industrious, create their own issues as it pleases them, whenever nature has not seen fit to bless them with a sufficient amount.

[Supercharts]

FYI -
The state of California has a deficit larger that all of the other states combined.

[shanek]

Originally posted by corplinx
The deficit is 1.9 percent of the GDP. Lowest among the larget 7 economies of the world.

I've already explained why comparing deficit spending to GDP is specious.

[shanek]

Originally posted by Jon_in_london
Where do they borrow all this money from?

A little over half is borrowed directly from the people in the form of bonds and T-bills, as well as borrowing from foreign investors. The rest is money created out of the blue when the government borrows money from itself—basically legalized counterfieting.

[shanek]

Originally posted by Drooper


If you monetise a large debt that might be true. As a universal statement that is not true.

Sure it is. It has the same effect as mass counterfieting.

[shanek]

Originally posted by a_unique_person
And there is no inflation, despite the deficit.

Where did you get that idea? We're currently at about 2% inflation!

[dsm]

Originally posted by Drooper

You don't pay it off, you roll it over and let it grow in line with the economy over time.

It is extremely efficient for the Government to borrow and maintain as sensible level of debt and allow it to expand with the size of the economy.


Is there anything wrong with paying off the debt? The current interest on the debt is around 1/3 of the government's budget (correct?), so I would think freeing us of that burden would provide more money for other government programs or more leverage for reducing taxes.

By the way, when you say "let it grow in line with the economy over time", isn't that what the interest on the debt does?

[Samus]

Originally posted by shanek
A little over half is borrowed directly from the people in the form of bonds and T-bills, as well as borrowing from foreign investors. The rest is money created out of the blue when the government borrows money from itself—basically legalized counterfieting. To be more specific, $3.65 trillion is debt held by the public, $2.76 trillion is intragovernmental holdings.

Debt held by the public includes Treasury Bills, Treasury Notes, Treasury Bonds, and U.S. Savings Bonds. Intragovernmental holdings include government trust funds, revolving funds, and special funds; and Federal Financing Bank securities. Like shanek said, it's the government borrowing from itself.

We will never pay down all of our debt, and that isn't a bad thing. However, making no effort to avoid deficits is a bad thing.

[shanek]

Originally posted by dwb
To be more specific, $3.65 trillion is debt held by the public, $2.76 trillion is intragovernmental holdings.

Debt held by the public includes Treasury Bills, Treasury Notes, Treasury Bonds, and U.S. Savings Bonds. Intragovernmental holdings include government trust funds, revolving funds, and special funds; and Federal Financing Bank securities. Like shanek said, it's the government borrowing from itself.

We will never pay down all of our debt, and that isn't a bad thing. However, making no effort to avoid deficits is a bad thing.

At the very least, we should cut out the latter part—the government borrowing money from itself—because that's what adversely affects us the most.

[a_unique_person]

Originally posted by shanek


Where did you get that idea? We're currently at about 2% inflation!

you are the worlds worst pedant. there is only 2% inflation despite record deficits.

[a_unique_person]

Originally posted by shanek


At the very least, we should cut out the latter part—the government borrowing money from itself—because that's what adversely affects us the most.

it was the invention of the bank that leant more money than it actually held that started the whole capitalist revolution. as time went by, it was seen that there had to be regulation on the amounts that banks could create, so this power was reserved to be only available to the central banks. otherwise it was too easy for a bank to lend too much. regulation and public accountability are meant to ensure the government doesn't create too much money.

the libertarian aversion to this means of creating wealth is only resentment by the rich at the thought that a poor person might be given some welfare, and hence dilute their own wealth.

[Underemployed]

Ahhh! I finally get it!

Michael Redman's Avatar is Gromit...Even after being told this it took me a while to figure it out. I always thought it was some kind of robot head on a stalk...DOH!

[Underemployed]

And oh yes, huge deficits are bad whichever way you look at it.

[shanek]

Originally posted by a_unique_person
you are the worlds worst pedant.

You said there was no inflation when there is! How is pointing that out being a pedant?

there is only 2% inflation despite record deficits.

Also despite the fact that we're in an economic recession, which before government meddling in the economy resulted in deflation.

[shanek]

Originally posted by a_unique_person
it was the invention of the bank that leant more money than it actually held that started the whole capitalist revolution. as time went by, it was seen that there had to be regulation on the amounts that banks could create, so this power was reserved to be only available to the central banks. otherwise it was too easy for a bank to lend too much. regulation and public accountability are meant to ensure the government doesn't create too much money.

Once again, you show you know zip about economics.

Inflation is not caused by the creation of money into the economy because the process of creation of money also creates more goods and services. In order to have inflation, you have to have money added into the economy without adding more goods and services.

The creation you're talking about is simply the process of banks loaning money. Say you have $100 and you deposit it into your checking account. The bank keeps a certain amount in reserve—say, 10%—and loans the rest out. That means they'll keep $10 and loan out $90. This is what you so wrongly referred to as "lending money they don't have." It works because not everyone gets all their money out at the same time. That $90 gets deposited; $9 is put in reserves, and $81 is lent; on and on and on. Since the reserve rate is 10%, or .1, the amount of money created is 1/.1, or 10 times the original amount. Your $100 creates $1000 in the economy. It creates it by making loans to people who are going to use it to start or expand businesses, build homes, etc. and create more goods and services in the economy.

Inflation is only caused by two things: When the rise in production goes beyond the total production measured by long-term aggregate demand, in which case production will fall. Once it falls below LTAD, we'll have deflation until it rises above it again, and so on. This is the business cycle.

The other thing that causes inflation is the government printing money. Since the act of printing money, unlike the act of loaning money, does not increase the number of goods and services in the economy. So individual dollars aren't worth as much.

Not that I expect you to actually listen to any of this, but hopefully it'll enlighten some lurkers out there.

the libertarian aversion to this means of creating wealth is only resentment by the rich at the thought that a poor person might be given some welfare, and hence dilute their own wealth.

This is a vicious lie created by nothing more than the pitiful delusions of your bigoted mind.

[shanek]

Oh, and by the way, a_u_p, if you think giving a Central Bank authority over interest rates and the reserve rate is the solution, look at this graph:

http://harrybrowne.org/articles/LandOf1.gif

Note that before the formation of the Federal Reserve, which according to your delusions should have resulted in runaway inflation, we had the normal business cycle of inflation/deflation. Under the Federal Reserve, the only time we had deflation was during the Depression. After that, it's been runaway inflation.

[Solitaire]

Originally posted by Drooper
You don't pay it off, you roll it over and let it grow in line with the economy over time.

It is extremely efficient for the Government to borrow and maintain as sensible level of debt and allow it to expand with the size of the economy.
Why? If you pay it off, then you can give the tax payer a 206.1 billion tax cut.

433.0 Social Security
304.5 National Defense
263.3 Income Security
217.4 Medicare
206.1 Interest
171.9 Health
62.9 Education, Training, Employment, Social Services
59.7 Commerce, Transportation, Housing Credit
45.0 Veteran's Benefits
29.8 Administration Of Justice
28.3 Agriculture
23.0 Natural Resources, Energy
20.7 General Science, Space, Technology
16.5 International Affairs
15.1 General Government
12.8 Community And Regional Development

All numbers in billions of dollars.
United States Budget For Fiscal 2001
October 1, 2000 to September 30, 2001
U.S. Department Of The Treasury.

[a_unique_person]

Originally posted by shanek
Oh, and by the way, a_u_p, if you think giving a Central Bank authority over interest rates and the reserve rate is the solution, look at this graph:

http://harrybrowne.org/articles/LandOf1.gif

Note that before the formation of the Federal Reserve, which according to your delusions should have resulted in runaway inflation, we had the normal business cycle of inflation/deflation. Under the Federal Reserve, the only time we had deflation was during the Depression. After that, it's been runaway inflation.

deflation = total loss of business confidence and unemployment. thanks for showing that the fed is necessary, even if due to the imperfect nature of the political system, it does fail at times.

[patnray]

My own humble opinion is that government should have balanced budgets during average economic times, should accumulate a surplus during economic expansions, and spend the surplus during economic slowdowns.

Virtually all politicians see the wisdom of deficit spending during slow times, though they differ on where to spend it. But financing that spending through borrowing dilutes the economic stimulus of the spending (IMO), and makes it harder to accumulate a surplus when times get better.

During boom times, the republicans (who seem to abhor a surplus) say "It's the peoples money, give it back to them!" And the democrats (who seem to abhor a surplus) say "It's a bonus. Spend it on social projects!" All of them use rosy predictions that assume the expansion will continue indefinitly (or until the other party gets elected...)

[a_unique_person]

Originally posted by patnray
My own humble opinion is that government should have balanced budgets during average economic times, should accumulate a surplus during economic expansions, and spend the surplus during economic slowdowns.

Virtually all politicians see the wisdom of deficit spending during slow times, though they differ on where to spend it. But financing that spending through borrowing dilutes the economic stimulus of the spending (IMO), and makes it harder to accumulate a surplus when times get better.

During boom times, the republicans (who seem to abhor a surplus) say "It's the peoples money, give it back to them!" And the democrats (who seem to abhor a surplus) say "It's a bonus. Spend it on social projects!" All of them use rosy predictions that assume the expansion will continue indefinitly (or until the other party gets elected...) [/B]

don't know that that's true. "bracket creep", the tendency of the poorer to pay more tax as inflation increases pay, creates an ongoing increase in taxes without the government having to do anything. "Tax cuts" usually just seem to return some of this increase.

[shanek]

Originally posted by a_unique_person
deflation = total loss of business confidence and unemployment.

Again, you show you know zilch about economics. It's part of the natural business cycle.

[shanek]

Originally posted by patnray
My own humble opinion is that government should have balanced budgets during average economic times, should accumulate a surplus during economic expansions, and spend the surplus during economic slowdowns.

Actually, the government was kind of forced to do that when we were on the gold standard. When FDR abrogated the gold standard by making it illegal for citizens to buy or sell gold, he paved the way for government to grow uncontrollably. Nixon fully sealed it by making the US Dollar a fiat currency.

[a_unique_person]

Originally posted by shanek


Again, you show you know zilch about economics. It's part of the natural business cycle.

i couldn't have put it better myself, that's why we had to improve it.

[a_unique_person]

Originally posted by shanek


Actually, the government was kind of forced to do that when we were on the gold standard. When FDR abrogated the gold standard by making it illegal for citizens to buy or sell gold, he paved the way for government to grow uncontrollably. Nixon fully sealed it by making the US Dollar a fiat currency.

it was the use of the gold standard that was one of the contributors to the great depression.

[shanek]

Originally posted by a_unique_person


i couldn't have put it better myself, that's why we had to improve it.

These "improvemednts" have stifled the booms and extended the busts. It's a colossial failure.

[shanek]

Originally posted by a_unique_person


it was the use of the gold standard that was one of the contributors to the great depression.

Where do you get this crap???? The main impetus of the Depression was the Fed (fearing inflation) putting the brakes on the money supply, leading directly to the stock market crash of '29 and the banking crisis of '33. They kept the screws on the money supply until WWII finally prompted the Fed to put some money back into the economy.

NOTHING good has come out of government meddling in the economy.

Go and learn something before you post on it.

[a_unique_person]

Originally posted by shanek


Where do you get this crap???? The main impetus of the Depression was the Fed (fearing inflation) putting the brakes on the money supply, leading directly to the stock market crash of '29 and the banking crisis of '33. They kept the screws on the money supply until WWII finally prompted the Fed to put some money back into the economy.

NOTHING good has come out of government meddling in the economy.

Go and learn something before you post on it.

it was the 'irrational exuberance' that created a stock market bubble. all attempts to fix the problem, such as looking back to the good old days of the gold standard, only made it worse.

[shanek]

Originally posted by a_unique_person


it was the 'irrational exuberance' that created a stock market bubble. all attempts to fix the problem, such as looking back to the good old days of the gold standard, only made it worse.

Do you have any support for the insanity you've asserted in this thread?

[Drooper]

Originally posted by shanek


Where do you get this crap???? The main impetus of the Depression was the Fed (fearing inflation) putting the brakes on the money supply, leading directly to the stock market crash of '29 and the banking crisis of '33. They kept the screws on the money supply until WWII finally prompted the Fed to put some money back into the economy.

NOTHING good has come out of government meddling in the economy.

Go and learn something before you post on it.

You are both right.

In the UK the monetary mistake was the return to the gold standard. It imposed a massive tightening in monetary policy and helped induce the depression.

Also, US policy began to bring the economy out of dperession before the war due to Keynes convincing FDR to implement the New Deal.

[Drooper]

Originally posted by dsm


Is there anything wrong with paying off the debt? The current interest on the debt is around 1/3 of the government's budget (correct?), so I would think freeing us of that burden would provide more money for other government programs or more leverage for reducing taxes.

By the way, when you say "let it grow in line with the economy over time", isn't that what the interest on the debt does?

It makes sense for the Government to maintain debt. It borrows money at a lower rate than anybody else and can invest it to good effect.

The interest on the debt would grow in line with the debt and in line with the country's ability to pay.

[Drooper]

Don't worry about the debt, it is not that large.

Here is something that might be of interest:

The national debt will increase so much that the payment of the interest to foreigners will impoverish the Kingdom"

Arthur Young 1772

Well 200 years down the line Britain is still there and doing OK. It still has a national debt too.

[Drooper]

Originally posted by shanek


Again, you show you know zilch about economics. It's part of the natural business cycle.

Well deflation simply means falling prices and there is nothing particularly normal about it. Best avoided in my view. ;)

It's is also a bit of a problem as it can lead to a liquidity trap, making monetary authorities impotent and monetary policy inappropriately tight.

Also, there is nothing wrong with a bit of inflation. In fact, as with most things in life, a little bit is good for you.

[shanek]

Originally posted by Drooper
Also, US policy began to bring the economy out of dperession before the war due to Keynes convincing FDR to implement the New Deal.

This is untrue. If anything, the New Deal spending made things worse. Keynes is now thoroughly discredited today.

I don't know about the UK economy, so I can't comment on your other claim.

[shanek]

Originally posted by Drooper
It makes sense for the Government to maintain debt. It borrows money at a lower rate than anybody else and can invest it to good effect.

Please give an example of a "good effect."

[shanek]

Originally posted by Drooper
Well deflation simply means falling prices and there is nothing particularly normal about it. Best avoided in my view. ;)

Nothing "normal" about it? What does that even mean?

Deflation is the market's way of recovering from a recession. Since the recession is brought on by overproduction, which results in inflation, the market needs a short amount of deflation to adjust. Since government meddling has resulted in perpetual inflation, the best the market can try to do is lower inflation rates. That's why it takes so d*mn long to get out of a recession these days.

Also, there is nothing wrong with a bit of inflation. In fact, as with most things in life, a little bit is good for you.

Why is this so with inflation and not deflation?

[Drooper]

A couple of things.

Firstly, there are verymany things that can cause a recession. It doesn't require overproduction. A classic supply shock is a good example.

Secondly, I think you are confusing deflation with "disinflation". I usee disinflation as a clumsy way to describe decelerating prices. In contrast, deflation is falling prices.

Disinflation commonly occurs during recession, although not always - see stagflation.


Why is a little bit of inflation a good thing and deflation not?
A few reasons. A little bit of inflation acts to aid adjustment of sticky nominal prices. Wages are the best example. In a "classical" recession, real wages are too high so unemployment increases and output falls. Eventually, real wages fall to ajust the labour marke, increase labour demand, increase output and lower unemployment. The problem tends to be that generally wgaes are sticky in nominal terms, meaning they don't tend to get cut. A little bit of inflation allows companies to keep nominal wages constant, while inflation reduces them in real terms. If prices are falling (deflation) even if companies held nominal wages constant real wages would still be rising, thus exacerbating a problems in a classical recession.

Another resaon is because nominal interest rates are bounded at zero and hence a little bit of deflation leaves monetary policy badly exposed. If prices are falling at 2% per annum, you will not be able to set real interest rates below 2%. But if the economy is in recession and the equillibrium real interest rate is zero, you will get what is known as a liquidity trap. This is where the money market can not adjust (the LM curve in a Mundell-Fleming model) using the interest rate, but instead needs a lower level of output (recession).


edited to correct stupido mistakes.

[Drooper]

Originally posted by shanek


Please give an example of a "good effect."

A hospital, a school, a road, a bridge.

[Drooper]

Originally posted by shanek


This is untrue. If anything, the New Deal spending made things worse. Keynes is now thoroughly discredited today.

I don't know about the UK economy, so I can't comment on your other claim.

Keynes is not thoroughly discredited. Keynes work has been misinterpreted by many, but his place is quite well cemented in macroeconomic theory today. Look up Neoclassical-Keynesian synthesis, or macroeconomics from micro foundations. Both these topics would show how understanding of Keynes' work has evolved from being viewed as an all encompassing macroeconomic model to a important and genuine special case within a wider more general framework. "Keynesian Recession" is a widely accepted phrase.

In the field of Economic History the role of the New Deal is still viewed on as important.

Things got worse in the 1930s largely to to increased trade protectionism,

[shanek]

Originally posted by Drooper
Firstly, there are verymany things that can cause a recession. It doesn't require overproduction. A classic supply shock is a good example.

No, if you think about it, a supply shock induces a bit of overproduction. But it's not economy-wide. Like when that one factory that manufactures computer RAM chips burned down a few years ago.

Secondly, I think you are confusing deflation with "disinflation". I usee disinflation as a clumsy way to describe decelerating prices. In contrast, deflation is falling prices.

Deflation is a lowering of the Consumer Price Index, and that is exactly what I'm referring to. Inflation is a rise in CPI.

"Disinflation" merely refers to the lowering of the inflation rate down to the zero level, but in the business model this is followed by a bot of deflation until it can get back to equilibrium.

Disinflation commonly occurs during recession, although not always - see stagflation.

Stagflation is rising inflation with rising unemployment. It didn't happen at all until Nixon initiated his wage and price freeze.

The problem tends to be that generally wgaes are sticky in nominal terms, meaning they don't tend to get cut. A little bit of inflation allows companies to keep nominal wages constant, while inflation reduces them in real terms.

And again, you're talking about what happens at the peak of the business cycle. Inflation is helpful there at taking it back down. That's why it happens.

If prices are falling (deflation) even if companies held nominal wages constant real wages would still be rising, thus exacerbating a problems in a classical recession.

No, the deflation in the recession has the inverse effect of inflation at the start: that effectively it compensates for the stickiness of wages making people earn more real wages at the same nominal wage level. This is important to get consumer spending up again.

And keep in mind we're not talking about a long amount of time here. A few months at most. Just until things can get ramped back up.

[shanek]

Originally posted by Drooper


A hospital, a school, a road, a bridge.

Why is deficit spending necessary to have these things? Especially since that these are mostly paid for with local tax dollars or even private dollars.

[shanek]

Originally posted by Drooper
Look up Neoclassical-Keynesian synthesis,

I'm familiar with it, and the abysmal failure it was in the 1970s; how acting under this model led to high unemployment and double-digit inflation. The policy responses predicted by the model as solutions only made things worse. Milton Friedman's theory of a natural unemployment rate is in direct contradiction to it, and New Classical macroeconomics has taken its place, and worked a lot better as a predictive model.

[a_unique_person]

Originally posted by shanek


This is untrue. If anything, the New Deal spending made things worse. Keynes is now thoroughly discredited today.

I don't know about the UK economy, so I can't comment on your other claim.

you mean, the right wing has decided to thoroughly discredit him, while using his policies. Eg, Reagan and Bush. The twist they have added, though, is that instead of giving the created wealth to the poor, they give it to the rich.

[shanek]

Originally posted by a_unique_person
you mean, the right wing has decided to thoroughly discredit him, while using his policies.

No, I mean the model, in every practical way, has been a colossial failure at prediction. You'll learn this in pretty much any economics class you'd take.

Eg, Reagan and Bush. The twist they have added, though, is that instead of giving the created wealth to the poor, they give it to the rich.

You know nothing about economics. Zilch. Zip. Nada. You're talking about the "trickle-down" theory, and I challenge you to find one single economics text which evens mentions it (other than in an historical context). It's nothing more than politispeak that doesn't even come close to working.

But your pathetic delusional little mind just has to find away to avoid reality, doesn't it?

[a_unique_person]

a few notes from Galbraith, "The Age of Uncertainty".

America was the inventor of paper money, and the invention was used to finance the american revolution. Benjamin Franklin's printing press was the source of much of the money.

As KG, notes, not only were the american colonies opposed to taxation without representation, they were opposed to it with representation. The war had to be paid for somehow. Massive inflation was the result, but also a new nation.

"This fact has never been recognised. when the war was won, the sound money men wrote the history. they could not have it said that the United States was conceived in financial sin. So they held that the financing of the Revolution was a terrible mistake, without ever explaining what would have been both practical and right. Their view persists. The Continental note has come down to us only as a symbol of opprobrium. "Not worth a Continental".

If properly treated, it would have a place beside the Liberty Bell. The historians even edited Benjamin Franklin. His position on paper money is rarely mentioned. Children are told only that he was a good man in diplomacy, thrift and electricity." p182.

[shanek]

Originally posted by a_unique_person
America was the inventor of paper money, and the invention was used to finance the american revolution.

And they paid a disastrous price for it later. The Continental Congress printed over $200 million in paper money; the states printed $200 million of their own. Hyperinflation resulted, and people were very reluctant to use the new currency. Eventually Congress was forced to move to a commodity-based currency. As you pointed out, from this experience, we get the expression, "Not worth a Continental."

Milton Friedman said that inflation was the only tax that could be imposed without legislation.

This is the disaster of the fiat currency. Just ask the Argentines.

[a_unique_person]

Originally posted by shanek


And they paid a disastrous price for it later. The Continental Congress printed over $200 million in paper money; the states printed $200 million of their own. Hyperinflation resulted, and people were very reluctant to use the new currency. Eventually Congress was forced to move to a commodity-based currency. As you pointed out, from this experience, we get the expression, "Not worth a Continental."

Milton Friedman said that inflation was the only tax that could be imposed without legislation.

This is the disaster of the fiat currency. Just ask the Argentines.

so how was the revolution to be financed?

And how prevalent is paper money around the world now? (That is a rhetorical question).

Milton Friedman is another ideologue. I read 'Free to Choose', and the fairy story he painted was every bit as rosy as any created by Mao or Stalin.

Paper money works fine, as long as it is regulated properly.

[shanek]

Originally posted by a_unique_person
Milton Friedman is another ideologue.

Except that his techniques work. Funny how you left that part out...

Paper money works fine, as long as it is regulated properly.

And history has shown us that the only way to make sure it is regulated properly is to back it up with gold or silver or some other valuable commodity.

[a_unique_person]

Originally posted by shanek


Except that his techniques work. Funny how you left that part out...



And history has shown us that the only way to make sure it is regulated properly is to back it up with gold or silver or some other valuable commodity.

most economists believe that gold and silver are relics of the stone age of economics.

you still haven't said how the revolution would have been financed.

if it was up to milton, the US would still be a colony of england, or the US would never have entered WWII and Hitler would be running Europe still.

[shanek]

Originally posted by a_unique_person
most economists believe that gold and silver are relics of the stone age of economics.

Support?

if it was up to milton, the US would still be a colony of england, or the US would never have entered WWII and Hitler would be running Europe still.

??? Quote Friedman saying this.

[a_unique_person]

Originally posted by shanek


Support?



??? Quote Friedman saying this.


just my logical extenstion of his logic. there are times when it is necessary to be financially imprudent. a poor man selling the silver to feed his family that night.

how would he have financed the american revolution? the credit rating of the revolutionaries was not worth anything, there was no taxation system in place, the leaders could not have afforded to finance it themselves.

[shanek]

Originally posted by a_unique_person
just my logical extenstion of his logic.

Then present his logic and your extension of it. Again, be sure to include all relevant premises and how they lead to the conclusion.

I expect you'll ignore this, as you have ignored all other similar requests from me in the history of your tenure on this forum.

how would he have financed the american revolution?

Read his (and others') ideas in Historical Perspectives on the American Economy, edited by Robert Whaples and Dianne C. Betts, Cambridge University Press. In particular, look at the essay "An economic interpretation of the American Revolution" by Marc Engal and Joseph A. Ernst.

[shanek]

Originally posted by shanek
Then present his logic and your extension of it. Again, be sure to include all relevant premises and how they lead to the conclusion.

[sound of crickets chirping]

I expect you'll ignore this, as you have ignored all other similar requests from me in the history of your tenure on this forum.

Called it!

[gnome]

An interesting commentary on the topic:

http://www.huppi.com/kangaroo/L-gold.htm

I do not unconditionally endorse these comments, but I present them for discussion.

[shanek]

The single best source I've read on this issue is The Economics of a Pure Gold Standard by Mark Skousen.