National Debt And Stuff

[bilby]

Bilby fails to understand that Germany in the 1920's IS an example of what happens when a country runs its printing press in overdrive

On the contrary, you fail to understand that German currency printing in the 1920s is an example of a response to an economic collapse due to a nation being robbed blind.

The hyperinflation wasn't the cause of economic collapse, it was a result of it.

The cause was the requirement to use national infrastructure for the benefit of other nations, in the form of paying them a debt denominated in a currency not under German control.

When national infrastructure ceases to be used to the benefit of the national economy, and its production is either sharply curtailed, or confiscated by people who take it out of the country, or both, the result is hyperinflation. And one unavoidable consequence of hyperinflation is a local demand for very high values of banknotes in circulation. Printing money is a symptom of collapse, not a cause of it, as we saw in Germany, and more recently, in Zimbabwe.

Blaming hyperinflation on the printing of money is putting the cart before the horse.

And creating money in order to pay debt isn't a strategy I am promoting anyway; It's just a rebuttal to the daft idea that the USA might one day be faced with a demand for US dollars that it doesn't have the resources to fulfil. Which is exactly synonymous with the idea that the integers might be finite.

For any integer n, there exists an integer n+1 that is always greater than n. For the integers to be finite implies a largest integer, n_max, such that n_max+1 is less than or equal to n_max, which would be a contradiction.

You're welcome.

 

[Canard DuJour]

it is ILLEGAL for Treasury to print banknotes (or create electronic money) and use that to pay interest or principal on its debt.

Where do you get that idea?

Debt Issuance

While a household has a finite lifespan, a government has an indefinite planning horizon. So, while a household must eventually retire its debt, a government can, in principle, refinance (or roll over) its debt indefinitely.

Yes, debt has to be repaid when it comes due. But maturing debt can be replaced with newly issued debt. Rolling over the debt in this manner means that it need never be “paid back.” Indeed, it may even grow over time in line with the scale of the economy’s operations as measured by population or GDP.

(...)

When the interest comes due, it can be paid in legal tender—that is, by printing additional U.S. or Federal Reserve Notes. It follows that a technical default can only occur if the government permits it. The situation here is similar to that of a corporation financing itself with debt convertible to equity at the issuer’s discretion. Involuntary default is essentially impossible.

Does the National Debt Matter?| St. Louis Fed

Although the national debt has grown exponentially over the past 12 years, causing concern for many, it does have its uses—especially in the U.S. Treasury market.

www.stlouisfed.org

So, no.

The author (Senior Vice President, St. Louis Fed. ) also notes that

Unlike personal debt, the national debt consists mainly of marketable securities issued by the U.S. Treasury as bonds. It is of some interest to note that the Treasury Department issued some of its securities in the form of small-denomination bills, called United States Notes, from 1862-1971 that are largely indistinguishable from the currency issued by the Federal Reserve today. To the extent that the national debt is held domestically, it constitutes domestic private sector wealth.

Together, these considerations suggest that we might want to look at the national debt from a different perspective. In particular, it seems more accurate to view the national debt less as form of debt and more as a form of money in circulation.

Other than the "illegal" roll-over misapprehension, you appear to think the fact that the govt matches its deficit with bond issuance ITFP is some slamdunker counterargument to ..what?

What about it? Who's saying otherwise?

You'd imagine that the Chairman of The Federal Reserve would be fully apprised of your facts (the bits you've got right at least), yet he affirmed that "government cannot become insolvent with respect to obligations in its own currency. A fiat money system, like the ones we have today, can produce such claims without limit." (- Alan Greenspan, then Fed Chair)

 

[barbos]

Just sell California for $30T.

 

[laughing dog]

[But unemployment level is the usual indicator for "bad times" and recession and depression. This did not rise at all in '29, and only slightly in 1930. ...

You are mistaken. The 1929 Crash did not start until the end of the 3rd quarter of 1929, so there was not time to see a significant rise in the unemployment rate. For the year 1929, the US unemployment rate was 3.2%. It rose to 8.7% in 1930 and to 15.6% for 1931. The rates in 1930 and 1931 are alarming to anyone familiar with US history. There was no unemployment insurance in effect at that time, nor was there social security. In my previous post, I observed that bank failures increased 10 fold in 1930 compared to 1929.

Your persistence in the claim that only the very rich were hurt in 1929 and 1930 reflects a lack of familiarity with the facts of that time, not to mention your disregard with the real costs borne by those thrown out
of work in the last quarter of 1929 and 1930.

BTW, your conflation with my insistence of historical accuracy with shedding tears with the rich is yet another example of your idiotic straw men. However, it is also extremely ironic because it dismisses the costs by the "little people" who were thrown out of work in 1929 and 1930. You are the one who is not shedding any tears for them, not me.

 

[Lumpenproletariat]

So then we all agree:
There's never a need to limit debt
-- i.e. public debt. Got it!

The questions

What makes you think it [higher debt] would be a problem? What, exactly, is the limit and why?

are answered by referring back to the case of Germany in the 1920s, which it should not be necessary to repeat again. That's the classic case of "unlimited" debt which was paid for by "printing" money because a government has power to "print" all the currency it wants to and then pay it and pretend the debt was paid. The nitpicking details about how Germany did this are irrelevant. The point is that they used "unlimited" debt paid by "unlimited" power to issue currency.

That's nonsense, as I already pointed out.

The problem Germany had was debt denominated in commodity money.

Their inflation was caused by their economic production being essentially confiscated. They had to pay people to do work, but got nothing in return for that payment - because the goods made by German workers had to be exported to buy gold, which then had to be handed over to the winners of the Great War.

Printing Marks was a response to inflation, not a cause of it.

If you imagine that today's US national debt, which is denominated in fiat currency US dollars, represents a similar situation, then you are just demonstrating your abject ignorance of what money is and how it works, of the historical situation in post Great War Germany, and that you are completely unqualified to have an opinion.

The gold standard wasn't particularly relevant to Germany's problems in the 1920's. A similar scenario ensues if the debt were denominated in post-gold but strong U.S. dollars. The problem was due to the obligations being in money (whether foreign paper or specie) over which the German government had no control.

Hyperinflation (sometimes defined as general price rises of 50% per month) is unlikely today, at least for the developed economies — lessons have been learned. But even persistent inflation of, say, 7% per year could be devastating given the fragility of global finances.

I'm not making predictions but I think many experts are much less sanguine about growing debts than bilby is.

Good point, but you see, those experts too are "completely unqualified to have an opinion."

And especially because they probably don't fully appreciate the great bilby Doctrine that

"The present and future ability of the USA to pay any debt of any magnitude, denominated in US Dollars, is unlimited."

No one has explained how this is not the same basic mindset behind Germany's inflation disaster of the 1920s. Of course in that case it was Marks, not dollars. But whatever the jargon (of which also the supply is "unlimited"), the basic thinking seems to be the same, though today an attempt to pay debt this way would be done in a more subtle fashion than Germany did it, not so crude or clumsy.

So today it seems the higher-debt crusaders believe the state (e.g. USA) can somehow create "debt of any magnitude" and run it up without limit, because the "ability" to produce dollars is "unlimited -- or Marks or Francs or EUs etc." And it's because of this perception of "unlimited" debt and currency that so many economic-stimulus-crusaders clamor to remove the debt ceiling so the politicians can run up the spending to any level to satisfy the instant gratification fantasizers, without raising tax revenue to pay for it, because govt has this magic power -- "unlimited ability" -- to produce all the money imaginable -- and therefore always increase the debt to any amount and create however much money is needed to pay it.

It's odd that no one posting here seems to disagree with this doctrine, but everyone gives bilby thumbs up for this brilliant revelation why the record-high debt can't ever be a problem. Though there's no explanation of this other than jibber-jabber jargon about "fiat currency" and "commodity money" and nitpicking over whether it's gold or Marks or dollars -- no straightforward explanation how Germany did not create unlimited money to pay (or pretend to pay) the unlimited debt -- as is laid out in the Doctrine:

"The present and future ability of the USA to pay any debt of any magnitude, denominated in US Dollars, is unlimited."

This Law of Economics seems to be a religion, or Universal Axiom among debt-ceiling raisers, like the 2nd Law of Thermodynamics is axiomatic among scientists.

Having written the above, OF COURSE it is despicable that QOPAnon cuts taxes on the rich when they're in control, then forces spending cuts on the working class when they have the House veto as now. Lumpen is playing into the QOPAnon agenda and should wake up.

I'll just repeat that it's
Austerity

that we need, which means both tax increases and spending cuts. Not any tax cuts.

https://www.britannica.com/topic/austerity :

austerity, also called austerity measures, a set of economic policies, usually consisting of tax increases, spending cuts, or a combination of the two, used by governments to reduce budget deficits.


Austerity measures can in principle be used at any time when there is concern about government expenditures exceeding government revenues. Often, however, governments delay resorting to such measures because they are usually politically unpopular. Instead, governments tend to rely on other means—for example, deficit financing, which involves borrowing from financial markets—to mitigate budget deficits in the short run, a decision that usually necessitates the adoption of harsher austerity measures in the long run.

Note the dichotomy here of instant gratification vs. the long-term good, which I've mentioned several times but can't get anyone to respond to. Why is it that crusaders to raise the debt ceiling (or eliminate it altogether) never want to say anything about the difference between instant gratification and the long-term good? What is their problem, or blind spot, on this point?

Historically, austerity measures have usually been implemented during times of economic crisis, when they are easier for governments to justify to their electorates and when they are often necessary to maintain a country’s credit worthiness in the eyes of lenders. During Argentina’s economic crisis in 1998–2002, the country adopted severe austerity measures, largely following the advice of its major creditor, the International Monetary Fund (IMF); they included cuts in government pensions and salaries and in numerous social programs, as well as significant tax increases. In return, the IMF agreed to extend a low-interest loan to the Argentine government to help its ailing economy. Russia and Turkey underwent similar hardships during their economic crises in 1998 and 2001, respectively. In Europe the Great Recession of 2007–09 forced many euro-zone countries (the countries that use the euro) to adopt similar austerity packages. Greece, Portugal, Spain, Ireland, Italy, and the United Kingdom implemented serious belt-tightening policies that involved severe cuts in social programs and concurrent tax hikes.


The use of austerity measures during times of economic hardship has caused much controversy about their purpose and usefulness. Many economists have pointed out that the measures have contractionary effects and usually exacerbate ongoing economic recessions. In fact, in many parts of the world, austerity measures imposed in the aftermath of economic crises have not helped countries move out of recession faster and have resulted in major public outrage and protests. In Argentina, Russia, and Turkey, for example, many high-level government officials resigned when mistimed austerity packages did more harm than good for their economies. Protests led by indignados (indignant citizens) erupted in Spain in May 2011, mainly fueled by the Spanish government’s decision to cut public spending for social programs. In Greece the Indignant Citizens Movement helped gather more than 300,000 people in front of the Greek parliament on June 5, 2011, resulting in months of protests, sit-ins, and sometimes-violent clashes with the police. The events in Greece eventually led to the defeat of the New Democracy party and a first-time victory for Syriza, whose major campaign promise had been to end austerity programs. Similar protests took place in Ireland, the United Kingdom, and other parts of Europe in 2010–11, usually resulting in the resignation of key government officials.

It's true that some higher-debt crusaders condemn "Austerity" as something they claim does not work, but these instant-gratification-seekers confuse "Austerity" with tax cuts for the rich, or with "trickle-down economics," which is not what "Austerity" means.

A proper understanding of austerity requires an intense study of how to increase taxes on the rich. E.g., a graduated property tax (real estate tax) would be one good way to force more revenue from the rich. Also the Wall Street tax would help some, even if it would not be enough. The only argument against a Wall St. tax is that it would not yield $300 or $400 billion revenue as Bernie Sanders claims. Other than this, there is no argument anyone can give why it would not be one way of raising revenue to help reduce the deficit.

And there are other ways to deal with higher taxes on the rich. It should not be limited to only higher income tax, which is easy to evade and so requires hiring thousands more IRS auditors, and there is a danger that the auditors will turn their attention to middle-income taxpayers who are much easier to audit because they cannot hire the good tax lawyers who are paid well by the billionaires.

 

[bilby]

No one has explained how this is not the same basic mindset behind's Germany's inflation disaster of the 1920s.

Yes, I did.

More than once.

I can explain it to you, but I can't understand it for you.

Perhaps you could explain for me why anyone would want to discuss anything with you, if you are not only going to ignore what they say, but even go so far as to pretend that they never said it at all?

 

[bilby]

I'll just repeat that it's
Austerity

that we need, which means both tax increases and spending cuts. Not any tax cuts.

Austerity doesn't produce long term good at all. It fucks everything up until people finally get so sick of it that they stop kicking themselves in the arse and vote in someone who stops the insanity.

Austerity is a fucking disaster in the short, the medium, and the long term. It's a perfect example of what not to do.

I'm aware that austerity doesn't entail tax cuts. It's still beyond stupid though.

Debt is money, and money is debt. Trying to stimulate an economy by imposing austerity is like trying to cure anemia by bloodletting. It's medieval idiocy that does vastly more harm than good.

Could you explain why you think that others are of the opinion that austerity implies tax cuts for the wealthy, when literally nobody in this thread has suggested any such foolishness?

And I am still waiting for you to explain why anyone would want to discuss anything with you, if you are not only going to ignore what they say, but even go so far as to pretend that they never said it at all?

 

[bilby]

Why is it that crusaders to raise the debt ceiling (or eliminate it altogether) never want to say anything about the difference between instant gratification vs. the long-term good? What is their problem, or blind spot, on this point?

Oh, that's easy - it's a point you have invented out of thin air, so it doesn't need to be addressed, because it's completely unrelated to anything anyone is actually discussing.

The policies I am advocating don't produce a difference between instant gratification vs. the long-term good; They are good policies in the short, medium, AND long term.

Your belief that they are not stems from your apparent ignorance of the fact that debt isn't, in or of itself, a bad long term strategy for a nation state. A household cannot have long term debt, because households are ephemeral. But a nation state not only can, but should, have indefinitely long-term debt.

Austerity is bad in both the immediate, and the long, term.

Its opposite - indefinitely extended debt - is good in both the immediate and the long term, assuming that it's invested in infrastructure, as I explained above (and as you once again completely ignored as though I hadn't posted anything at all).

Do you perhaps have a difficulty in distinguishing the difference between a discussion, and a madman preaching to an audience he has no interest in hearing any feedback from?

 

[Swammerdami]

it is ILLEGAL for Treasury to print banknotes (or create electronic money) and use that to pay interest or principal on its debt.
[Note that this is a specific statement about banknotes.]

Where do you get that idea?

maturing debt can be replaced with newly issued debt.

So, no.

Oh my. It's bad enough that many of us prattle without any real understanding of economics, banking or money creation -- and trot out grade-school trivia to show off -- but is it too much to ask that we agree on a dictionary?

A banknote is a type of negotiable promissory note, made by a bank or other licensed authority, payable to the bearer on demand.

Now use Google to discover whether newly issued Treasury debt meets the definition of "banknote." If you're able to do that, ask a Mod for help deleting your mistaken post.

It is amusing to note that you and the other guy hurry to Like each other's posts, no matter how wrong they are!

 

[bilby]

it is ILLEGAL for Treasury to print banknotes (or create electronic money) and use that to pay interest or principal on its debt.
[Note that this is a specific statement about banknotes.]

Where do you get that idea?

maturing debt can be replaced with newly issued debt.

So, no.

Oh my. It's bad enough that many of us prattle without any real understanding of economics, banking or money creation -- and trot out grade-school trivia to show off -- but is it too much to ask that we agree on a dictionary?

A banknote is a type of negotiable promissory note, made by a bank or other licensed authority, payable to the bearer on demand.

Now use Google to discover whether newly issued Treasury debt meets the definition of "banknote." If you're able to do that, ask a Mod for help deleting your mistaken post.

It is amusing to note that you and the other guy hurry to Like each other's posts, no matter how wrong they are!

Banknotes are an irrelevant and trivial fraction of money. Local rules about banknotes are completely unimportant to any modern economy.

And the concept of banknotes being promissory notes redeemable on demand is inapplicable to fiat currency. What, exactly, would you redeem a dollar bill for, other than a dollar, which it already is?

Modern currency isn't redeemable for gold (or silver, or germanium, or platinum, or quatloos); Gold is just one of billions of things that you can swap money for at the prevailing market rate.

 

[Canard DuJour]

it is ILLEGAL for Treasury to print banknotes (or create electronic money) and use that to pay interest or principal on its debt.
[Note that this is a specific statement about banknotes.]

Where do you get that idea?

maturing debt can be replaced with newly issued debt.

So, no.

Oh my. It's bad enough that many of us prattle without any real understanding of economics, banking or money creation -- and trot out grade-school trivia to show off -- but is it too much to ask that we agree on a dictionary?

A banknote is a type of negotiable promissory note, made by a bank or other licensed authority, payable to the bearer on demand.

Now use Google to discover whether newly issued Treasury debt meets the definition of "banknote." If you're able to do that, ask a Mod for help deleting your mistaken post.

You, however, claimed that "it is ILLEGAL for Treasury to print banknotes (or create electronic money) and use that to pay interest or principal on its debt."

It is not only legal but routine to pay both by creation of electronic money which payees can withdraw as banknotes at whim.

As the Fed article avers, "Ultimately, the federal government has control over the supply of the nation’s legal tender."

It is amusing to note that you and the other guy hurry to Like each other's posts, no matter how wrong they are!

Your disagreement, however, remains with central bankers.

 

[Swammerdami]

it is ILLEGAL for Treasury to print banknotes (or create electronic money) and use that to pay interest or principal on its debt.
[Note that this is a specific statement about banknotes.]

Where do you get that idea?

maturing debt can be replaced with newly issued debt.

So, no.

Oh my. It's bad enough that many of us prattle without any real understanding of economics, banking or money creation -- and trot out grade-school trivia to show off -- but is it too much to ask that we agree on a dictionary?

A banknote is a type of negotiable promissory note, made by a bank or other licensed authority, payable to the bearer on demand.

Now use Google to discover whether newly issued Treasury debt meets the definition of "banknote." If you're able to do that, ask a Mod for help deleting your mistaken post.

You, however, claimed that "it is ILLEGAL for Treasury to print banknotes (or create electronic money) and use that to pay interest or principal on its debt."

It is not only legal but routine to pay both by creation of electronic money which payees can withdraw as banknotes at whim.

Money, whether electronic or as circulating banknotes, is created by banks (including the Federal Reserve Banks) and not by the Treasury. Taking quotes out of context does not change this. IIRC this has been explained to you before.

As the Fed article avers, "Ultimately, the federal government has control over the supply of the nation’s legal tender."

Are you "moving the goalposts"? The debate was whether Treasury created money. I guess you've just learned that, No, "newly issued Treasury debt" is NOT money. (Though banks, whether central or private, DO create money when they buy that debt.)

Since the FedRes Banks are effectively part of the federal government, the "Fed" allegation you quote isn't wrong. But the claim you sought to refute was about U.S. Treasury specifically, and NOT about FedRes.

The Fed Res (for which a large portion of the officers are elected by private banks) is an autonomous entity. It is subject to various regulations. UIAM it still buys Treasury debt only on the open market, where the prices are set by competitive bidding.

 

[RVonse]

If the US dollar today were the same commodity backed currency that it was in the 1930s, then unavoidable default would still be a thing. As would transatlantic airship travel.

I'm wondering how anyone could be so woefully unaware that it's no longer the 1930s.

Macroeconomics today bears much the same relationship to macroeconomics in the 1930s as computers today have to computers of the 1930s.

Things have changed. A lot. I'm not sure how to even begin to explain this to someone for whom it's not already obvious.

Actually, economics is more the study of human behavior than it is of airships or computers. And humans have not changed much in the last 10000 years let alone the last 100 years. Human behavior is very complex and hard to understand which is probably why economics is so poorly understood even by people who have studied the subject.

 

[RVonse]

My grandfather lost his trust in banks after the Crash in 1929, and he lost money to a bank failure. He was also upset when the government took the dollar off the gold standard in 1934 and made it illegal to own gold coins that were not collector's items. So he filled a large jar with gold coins in $20, $10, and $5 denominations, and he buried that jar on his farm. That was technically illegal hoarding, but he got away with it. He told my father where it was buried, so I was there when he dug it up after my grandfather died. Those coins were worth far more than their face value, because paper money had undergone inflation.

Unfortunately, Gramps didn't trust the banks, so he buried a stash of paper money, too. It stank pretty badly when we dug it up, and it was worth far less than it would have been, if he had only used it to earn interest instead of burying it. We had a good laugh over that, when we stopped retching, but he didn't understand how money or inflation worked, just that it was worth something to him. So, while it made sense to bury the gold from a personal financial perspective back then (although it was illegal hoarding), it was stupid to bury the paper money. The federal government had passed new laws to protect depositors from bank failures, so, by the time the movie "It's a Wonderful Life" came out to dramatize runs on banks, people didn't need to rush to withdraw cash from banks that were in danger of failing.

Returning the US dollar to the gold standard would be suicidal for the US and world economies. One major tool that gives us any hope of mitigating booms and busts in economic activity is the ability of a national government to expand and contract the money supply. When the economy turns down, businesses need to be able to borrow money more easily, but when it overheats, interest rate hikes are needed to curb the appetite for borrowing. Another tool is for the government to increase deficit spending or cut government spending to meet the ups and downs of economic activity.

Unfortunately, fiscal conservatives are prone to favoring policies like bringing back the gold standard and balancing the budget, even though those policies would pretty much destroy the ability of a government to manage its economy intelligently. And people generally, like my grandfather, feel in their gut that fiscal conservatives are right. So Republicans tend to be seen as better managers of the economy, even though they tend to advocate very dangerous financial policies.

I agree with the bold I highlighted of your response. But I also agree with your grandfather when it comes to human behavior and political changes in laws will occur overtime with humans, such as the taking down of glass steagall and/or other banking reforms that were wisely put in place but are now not present. Taking everything into consideration your grandfather was probably more right than you are today its just that you don't know it yet because the real shit show involving your life hasn't taken place yet. These things only happen every 90 years and no one alive has lived through any of it yet.

 

[RVonse]

[But unemployment level is the usual indicator for "bad times" and recession and depression. This did not rise at all in '29, and only slightly in 1930. ...

You are mistaken. The 1929 Crash did not start until the end of the 3rd quarter of 1929, so there was not time to see a significant rise in the unemployment rate. For the year 1929, the US unemployment rate was 3.2%. It rose to 8.7% in 1930 and to 15.6% for 1931. The rates in 1930 and 1931 are alarming to anyone familiar with US history. There was no unemployment insurance in effect at that time, nor was there social security. In my previous post, I observed that bank failures increased 10 fold in 1930 compared to 1929.

Your persistence in the claim that only the very rich were hurt in 1929 and 1930 reflects a lack of familiarity with the facts of that time, not to mention your disregard with the real costs borne by those thrown out
of work in the last quarter of 1929 and 1930.

BTW, your conflation with my insistence of historical accuracy with shedding tears with the rich is yet another example of your idiotic straw men. However, it is also extremely ironic because it dismisses the costs by the "little people" who were thrown out of work in 1929 and 1930. You are the one who is not shedding any tears for them, not me.

Laughing dog you are skilled, knowledgable, and experienced in economics so let me ask you the following question. If debt and budgets don't matter and each year the usual financial accounting tricks are used where is the end game? Do we have to invent new qaudzillion numbers for what the debt will be? How do we pay the interest on that debt amount even if the interest is held low (which it shouldn't be)?

The economic talking heads always say the government is different than a household but both have to pay interest on the debt that they borrowed.

 

[Cheerful Charlie]

GOP House to increase deficits.

...
The first bill Republicans are bringing to the floor once the rules package is adopted would increase the deficit by more than $114 billion over a decade, according to a nonpartisan Congressional Budget Office analysis released Monday. The measure from Adrian Smith (R-Neb.) would roll back about $80 billion in IRS funding and decrease revenues by nearly $186 billion.
.....

Unpacking the House GOP's new rules: A handy guide to the changes

The 55-page plan that Republicans passed Monday night enshrines major changes to how legislating happens, with big consequences for new Speaker Kevin McCarthy.

www.politico.com

 

[Harry Bosch]

GOP House to increase deficits.

...
The first bill Republicans are bringing to the floor once the rules package is adopted would increase the deficit by more than $114 billion over a decade, according to a nonpartisan Congressional Budget Office analysis released Monday. The measure from Adrian Smith (R-Neb.) would roll back about $80 billion in IRS funding and decrease revenues by nearly $186 billion.
.....

Unpacking the House GOP's new rules: A handy guide to the changes

The 55-page plan that Republicans passed Monday night enshrines major changes to how legislating happens, with big consequences for new Speaker Kevin McCarthy.

www.politico.com

Bullshit. You're being very mean to the republicans. The republicans are the responsible party here. They will lower the deficit by not increasing the debt ceiling. And then they'll get Hunter... Nation saved.

 

[Cheerful Charlie]

More new GOP House rules. To deal with budget deficits, the House may not raise taxes. It can only cut spending. Oh look at that! Deficits! We must cut spending. Saftey net, SS, Medicare. It is the only way.

However, McCarthy has now backed off of that, realizing it is going to be deadly in future elections to play this hoary, old "Starve the beast" trick. He and smarter Republicans know that to try to actually slash popular social programs would give the Democrats an issue they could us to put a saddle on the GOP, don their spurs and ride this hard.

 

[laughing dog]

[But unemployment level is the usual indicator for "bad times" and recession and depression. This did not rise at all in '29, and only slightly in 1930. ...

You are mistaken. The 1929 Crash did not start until the end of the 3rd quarter of 1929, so there was not time to see a significant rise in the unemployment rate. For the year 1929, the US unemployment rate was 3.2%. It rose to 8.7% in 1930 and to 15.6% for 1931. The rates in 1930 and 1931 are alarming to anyone familiar with US history. There was no unemployment insurance in effect at that time, nor was there social security. In my previous post, I observed that bank failures increased 10 fold in 1930 compared to 1929.

Your persistence in the claim that only the very rich were hurt in 1929 and 1930 reflects a lack of familiarity with the facts of that time, not to mention your disregard with the real costs borne by those thrown out
of work in the last quarter of 1929 and 1930.

BTW, your conflation with my insistence of historical accuracy with shedding tears with the rich is yet another example of your idiotic straw men. However, it is also extremely ironic because it dismisses the costs by the "little people" who were thrown out of work in 1929 and 1930. You are the one who is not shedding any tears for them, not me.

Laughing dog you are skilled, knowledgable, and experienced in economics so let me ask you the following question. If debt and budgets don't matter and each year the usual financial accounting tricks are used where is the end game? Do we have to invent new qaudzillion numbers for what the debt will be? How do we pay the interest on that debt amount even if the interest is held low (which it shouldn't be)?

I have never said debts and budgets don't matter. They always matter, the question is to what extent. I differ with some posters in this thread that I think at some point, gov't debt can pose a real economic problem. I just happen to think we are not at that point.

For example, from an overall perspective (macroeconomic if you like jargon), interest and debt repayment poses little burden on a country when those payments are made to people and institutions in the country because the payments are simply redistribution of income from taxpayers to domestic creditors. Right now, around 70% of outstanding US federal gov't debt is held by domestic creditors (people, pension funds, financial institutions, state and local gov'ts and the Social Security Administration). Interest payments and debt retirement repayment to those creditors remains in the country. It does not represent much of an economic burden in terms of its effects on real economic activity.

Financially, when one analyzes the credit-worthiness of a borrower, one usually looks at their income and their wealth. In most discussions about the US national debt, the wealth of the US gov't is completely ignored. The US gov't has trillions of dollars in assets. The US gov't owns thousands of acres of land, and multitudes of physical assets such as dams, bridges, buildings, planes etc... that conceptually could be sold to pay off debt.

Moreover, the GDP is usually taken as the total available income in the US. Right now, it is around an estimated $23 trillion dollars and federal tax reciepts are about $5 trillion which means that the effective federal tax burden on all income is less than 20% of GDP. While people do not like paying more in taxes, I think it is clear from a purely arithmetic view, there is room for increasing the overall tax burden.

Arithmetically, if the economy grows at a rate that exceeds the rate of interest on the debt, then interest payments on debt should be no problem because tax revenues will grow faster than interest payments.

Arithmetically, if tax revenues grow at the rate that the economy (inflation plus "real" growth) does while gov't spending grows only at the rate of inflation, any deficit has to decline.

In my view, the debates over the appropriate use and level of debt are mostly moral, philosophical and political in nature. Which means there will always be a debate because of the variety of views.

But economically and financially literate people understand that debt use can be beneficial. From a purely financial point of view, when the financial returns from the use of debt exceed the financial expense of borrowing, the borrower adds to its income and net wealth. From an economic point of view, when the benefits (financial and non-cash) from debt use exceed the cost of obtaining the funds, the borrower is better off. In my view, much of the debate revolves around the value of the non-cash flow benefits from our current use of debt.

The economic talking heads always say the government is different than a household but both have to pay interest on the debt that they borrowed.

True, but gov'ts have tools to pay interest that households don't: taxes and money creation. In addition, the US gov't has an advantage over most households in that creditors worldwide seem willing to lend it funds whenever it wants.

 

[Copernicus]

My grandfather lost his trust in banks after the Crash in 1929, and he lost money to a bank failure. He was also upset when the government took the dollar off the gold standard in 1934 and made it illegal to own gold coins that were not collector's items. So he filled a large jar with gold coins in $20, $10, and $5 denominations, and he buried that jar on his farm. That was technically illegal hoarding, but he got away with it. He told my father where it was buried, so I was there when he dug it up after my grandfather died. Those coins were worth far more than their face value, because paper money had undergone inflation.

Unfortunately, Gramps didn't trust the banks, so he buried a stash of paper money, too. It stank pretty badly when we dug it up, and it was worth far less than it would have been, if he had only used it to earn interest instead of burying it. We had a good laugh over that, when we stopped retching, but he didn't understand how money or inflation worked, just that it was worth something to him. So, while it made sense to bury the gold from a personal financial perspective back then (although it was illegal hoarding), it was stupid to bury the paper money. The federal government had passed new laws to protect depositors from bank failures, so, by the time the movie "It's a Wonderful Life" came out to dramatize runs on banks, people didn't need to rush to withdraw cash from banks that were in danger of failing.

Returning the US dollar to the gold standard would be suicidal for the US and world economies. One major tool that gives us any hope of mitigating booms and busts in economic activity is the ability of a national government to expand and contract the money supply. When the economy turns down, businesses need to be able to borrow money more easily, but when it overheats, interest rate hikes are needed to curb the appetite for borrowing. Another tool is for the government to increase deficit spending or cut government spending to meet the ups and downs of economic activity.

Unfortunately, fiscal conservatives are prone to favoring policies like bringing back the gold standard and balancing the budget, even though those policies would pretty much destroy the ability of a government to manage its economy intelligently. And people generally, like my grandfather, feel in their gut that fiscal conservatives are right. So Republicans tend to be seen as better managers of the economy, even though they tend to advocate very dangerous financial policies.

I agree with the bold I highlighted of your response. But I also agree with your grandfather when it comes to human behavior and political changes in laws will occur overtime with humans, such as the taking down of glass steagall and/or other banking reforms that were wisely put in place but are now not present. Taking everything into consideration your grandfather was probably more right than you are today its just that you don't know it yet because the real shit show involving your life hasn't taken place yet. These things only happen every 90 years and no one alive has lived through any of it yet.

I think you may have attributed a more sophisticated understanding of economics to my grandfather than is warranted by that short autobiographical anecdote of mine. My grandfather lived through the Great Crash of 1929. He lost all faith in banks, and the groundbreaking theory of Keynsian economics wasn't widely understood or even taken seriously back then. For that matter, it isn't really widely understood today by most people, although economists take it seriously.

What my grandfather did to preserve the money he earned and to pass it on to us progeny was to bury it in the ground. From a macroeconomic perspective, his burying gold wasn't smart, nor was his burying paper money stupid. It was grounded in household microeconomics and the fear of bank failures. When the federal government embraced the economic theory of John Maynard Keynes and took the dollar off the gold standard to implement it, the value of gold inflated because it had intrinsic value to people. Paper money did not, so its value deflated over time as inflation took hold and the money supply was expanded. Worse yet, it was rotting and smelled terrible when we dug it up after his death. The gold did not smell bad, and it looked a lot better. If my grandfather had understood economics better, he would have dug up that paper money and put it in the bank, where it would earn interest over time, better preserving its value.