Both parties abandon any pretence of reducing the deficit at the worse time

[SimpleDon]

The bipartisan Senate budget deal will pass at least the Senate.

Then we are looking at a trillion dollar deficit in 2019, if it passes in the house. It appears that fiscal responsibility is only important when the Democrats are in power. That tax cuts and defense spending erase deficit concerns for the Republicans and that spending for social programs and infrastructure does the same for the Democrats.

The hypocrisy is breathtaking. The Republicans preached austerity during the Obama administration and the Democrats pointed proudly to their adherence to the sequester and revenue neutrality at the same time. Both hurt the economy and both delayed the recovery from the Great Recession. Now that the economy has slowly struggled back in spite of the best efforts of the government, with the exception of the Federal Reserve, both now embrace stimulus spending.

This all means that the Congress has done exactly the wrong thing for the economy in both of its phases. They met the recession with austerity and the good economy with a stimulus.

But it is going to produce an extremely undesirable consequence. When the federal government runs a deficit they create money that is spent into the economy. This is what creates inflation.

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More precisely, the Treasury sells bonds to raise the money to spend. This method doesn't reduce the threat of inflation. The money used to purchase the bonds is money that is being redirected from savings to consumption spending by the government.

Savings, by definition, is money that is being diverted from consumption spending. It is money that doesn't impact the economy.

In this method of financing the deficit, the government does create new money, it is just in the form of Treasury bills.

The economy doesn't need a fiscal stimulus when the unemployment is 4%. It will create inflation.

And the Fed will proacatively raise interest rates to try to fight the inflation, which will disportantly hurt industries that depend on their buyers taking out large loans, at least in theory. But the dirty secret is that raising the interest rates to reduce inflation is losing its ability to impact inflation, just like lowering the interest rate to stimulate the economy had little effect during the Great Recession.

This is because the burden of fighting inflation this way now falls almost completely on the employees. The companies lay off people to preserve their profits, secure that they can rehire people when the economy picks up because so many people are laid off in response to a downturn in their industry. Rehire employees often at lower wages than they were paying before.

Here is corporate profits before taxes and unemployment, U6 - including marginally employed and underemployed part time. Corporate profits recovered their pre-recession level from the Great Recession in the first quarter of 2010. U6 hasn't still dropped to its pre-recession value, but it is close.

​

Corporate profits have become almost recession proof, they recovered quickly from the Great Recession, the worst since the great depression. An interest rate increase by the Fed will hardly cause a ripple in the rate of corporate profits.

The corporations can now defend against higher interest rates by sacrificing a part of their profits to buy down the customers interest rate for the big ticket purchase of a home, a car or a major appliance, blunting the inflation fighting effect of the increase in the interest rates. And the neoliberals prevent us from using the most effective way of fighting inflation, by raising taxes.

 

[funinspace]

I think the Repugs re-demonstrated their debt and spend habits quite well in the diminutive Bush years already.

The deficit show should be quite fun with the next recession...FFvC's should get some more gold metals there, when the Yuuge numbers come it...

 

[Jimmy Higgins]

Limbaugh when asked about it on his show said he is just 'numb' about it. That is spin for... whatever the GOP wants I won't rail against.

 

[laughing dog]

Part of this is due to Senate rules. The Democrats can prevent almost any regular spending bill because they can muster 41 votes against it. I wonder if the Republicans had 61 votes if we would see the sort of bill. But that is not an experiment I wish to see.

 

[SimpleDon]

Part of this is due to Senate rules. The Democrats can prevent almost any regular spending bill because they can muster 41 votes against it. I wonder if the Republicans had 61 votes if we would see the sort of bill. But that is not an experiment I wish to see.

I don't think that we would see this kind of bill if the Republicans had 61 votes, but I have no doubt that the Republicans would increase the deficit even more than they have already by passing the tax cuts.

But isn't this how it is supposed to work, with the Republicans having only 51 votes. each side giving a little?

 

[Horatio Parker]

Tax cuts that aren't spent won't stimulate.

But raising interest rates is inflationary, sez the St Louis Fed:

https://www.stlouisfed.org/publicat...obvious-solution-to-the-low-inflation-problem

If a central bank is to move inflation toward its inflation target without reference to the growth rate in a measure of money, how is it supposed to proceed? Central banks control inflation indirectly by relying on an intermediate instrument—typically an overnight nominal interest rate. In the U.S., the FOMC sets a target for the overnight federal funds rate (fed funds rate) and sends a directive to the New York Federal Reserve Bank, which has the responsibility of reaching the target through intervention in financial markets.

Conventional central banking practice is to increase the nominal interest rate target when inflation is high relative to the inflation target and to decrease the target when inflation is low. The reasoning behind this practice is that increasing interest rates reduces spending, "cools" the economy and reduces inflation, while reducing interest rates increases spending, "heats up" the economy and increases inflation.

Neo-Fisherism

But what if central banks have inflation control wrong? A well-established empirical regularity, and a key component of essentially all mainstream macroeconomic theories, is the Fisher effect—a positive relationship between the nominal interest rate and inflation. The Fisher relationship, named for Irving Fisher, is readily discernible in the data.

 

[SimpleDon]

Limbaugh when asked about it on his show said he is just 'numb' about it. That is spin for... whatever the GOP wants I won't rail against.

Then it is the one memo that Rush didn't get. They have always behaved this way, increasing the deficit when they pass their tax cuts and then wanting the Democrats to balance the budget by reducing spending on social programs. They are a one trick pony and this is their trick.

 

[Elixir]

Part of this is due to Senate rules. The Democrats can prevent almost any regular spending bill because they can muster 41 votes against it. I wonder if the Republicans had 61 votes if we would see the sort of bill. But that is not an experiment I wish to see.

I don't think that we would see this kind of bill if the Republicans had 61 votes, but I have no doubt that the Republicans would increase the deficit even more than they have already by passing the tax cuts.

But isn't this how it is supposed to work, with the Republicans having only 51 votes. each side giving a little?

That depends on who is doing the supposing. For Repugs, it's supposed to work like this:

1) Borrow and Steal $1,500,000,000,000 and pass it out to your cronies (that's about $12,000 stolen from every full time worker in the country)
2) Throw the workers a $1.50/wk raise/tax reduction so they think it's a good deal
3) Complain about the deficit
4) Steal from Medicaid, Medicare and Social Security to pay for (some of) it
5) Lather, rinse repeat.

 

[SimpleDon]

Tax cuts that aren't spent won't stimulate.

But raising interest rates is inflationary, sez the St Louis Fed:

https://www.stlouisfed.org/publicat...obvious-solution-to-the-low-inflation-problem

If a central bank is to move inflation toward its inflation target without reference to the growth rate in a measure of money, how is it supposed to proceed? Central banks control inflation indirectly by relying on an intermediate instrument—typically an overnight nominal interest rate. In the U.S., the FOMC sets a target for the overnight federal funds rate (fed funds rate) and sends a directive to the New York Federal Reserve Bank, which has the responsibility of reaching the target through intervention in financial markets.

Conventional central banking practice is to increase the nominal interest rate target when inflation is high relative to the inflation target and to decrease the target when inflation is low. The reasoning behind this practice is that increasing interest rates reduces spending, "cools" the economy and reduces inflation, while reducing interest rates increases spending, "heats up" the economy and increases inflation.

Neo-Fisherism

But what if central banks have inflation control wrong? A well-established empirical regularity, and a key component of essentially all mainstream macroeconomic theories, is the Fisher effect—a positive relationship between the nominal interest rate and inflation. The Fisher relationship, named for Irving Fisher, is readily discernible in the data.

As I understand the Fischer effect it is based on an anticipated interest rate. That if the anticipated interest rate is higher than the nominal interest rate spending will increase following an increase by the central bank in the nominal rate. This is because anyone who anticipates a higher rate would see the central bank increase as the first of many. It is really the anticipation of more inflation, which makes the raised nominal interest rate attractive.

Irving Fischer to me is the perfect example of an economist who had brilliant insights into economics, debt deflation chief among them but also the QToM, but then threw them all away by basically asserting that they told us all that we needed to know about economics.

This lead to some disastrous predictions that the stock market had reached a permanent high in the summer of 1929 and that we needed to limit ourselves to 100% reserve banking. The quantity of money is important but as an indication of the health of the economy, not as a method to control the economy. While it is very hard for the economy to grow faster than the money supply is growing, it is not because the quantity of money determines pricing levels, it is because the difference has to made up by private debt, which consumers are reluctant to do. Inflation isn't caused by too much money being created by the government from a low interest rate or by bank credit and fractional reserve banking, the excess quantity of money is the result of the inflation.

 

[TV and credit cards]

Earlier Thursday, Ryan expressed confidence that the bill, which delivers a military funding boost sought by the GOP alongside increases in domestic spending favored by Democrats, would pass.

“There is widespread agreement in both parties that we have cut the military too much, that our service members defense contractors are suffering as a result, and that we need to do better,” he said.

There. Fixed it for ya, Paul. You miserable human being. Sure it will pass. Of course it will pass. Who doesn't have a US defense contractor in their backyard? Hell, you can play too, Canada.

 

[Horatio Parker]

Tax cuts that aren't spent won't stimulate.

But raising interest rates is inflationary, sez the St Louis Fed:

https://www.stlouisfed.org/publicat...obvious-solution-to-the-low-inflation-problem

If a central bank is to move inflation toward its inflation target without reference to the growth rate in a measure of money, how is it supposed to proceed? Central banks control inflation indirectly by relying on an intermediate instrument—typically an overnight nominal interest rate. In the U.S., the FOMC sets a target for the overnight federal funds rate (fed funds rate) and sends a directive to the New York Federal Reserve Bank, which has the responsibility of reaching the target through intervention in financial markets.

Conventional central banking practice is to increase the nominal interest rate target when inflation is high relative to the inflation target and to decrease the target when inflation is low. The reasoning behind this practice is that increasing interest rates reduces spending, "cools" the economy and reduces inflation, while reducing interest rates increases spending, "heats up" the economy and increases inflation.

Neo-Fisherism

But what if central banks have inflation control wrong? A well-established empirical regularity, and a key component of essentially all mainstream macroeconomic theories, is the Fisher effect—a positive relationship between the nominal interest rate and inflation. The Fisher relationship, named for Irving Fisher, is readily discernible in the data.

As I understand the Fischer effect it is based on an anticipated interest rate. That if the anticipated interest rate is higher than the nominal interest rate spending will increase following an increase by the central bank in the nominal rate. This is because anyone who anticipates a higher rate would see the central bank increase as the first of many. It is really the anticipation of more inflation, which makes the raised nominal interest rate attractive.

Irving Fischer to me is the perfect example of an economist who had brilliant insights into economics, debt deflation chief among them but also the QToM, but then threw them all away by basically asserting that they told us all that we needed to know about economics.

This lead to some disastrous predictions that the stock market had reached a permanent high in the summer of 1929 and that we needed to limit ourselves to 100% reserve banking. The quantity of money is important but as an indication of the health of the economy, not as a method to control the economy. While it is very hard for the economy to grow faster than the money supply is growing, it is not because the quantity of money determines pricing levels, it is because the difference has to made up by private debt, which consumers are reluctant to do. Inflation isn't caused by too much money being created by the government from a low interest rate or by bank credit and fractional reserve banking, the excess quantity of money is the result of the inflation.

The article points to countries that have maintained low or negative rates, and they all have no inflation or deflation. I'll let the geniuses figure out how it works; I know that Mosler thinks interest rates are a pass through, which would be an obvious mechanism.

Anyway, the point is what if everyone thinks Trumps tax cuts and spending along with the uptick in wages is causing inflation pressures to build when it's really the Fed not knowing which is the gas and which is the brake?

 

[Jimmy Higgins]

And so it is official... okay, it has been official for a long time, but I guess this just rams it home.

The deal suspends a 2011 budget law championed by conservatives that set hard caps on discretionary spending and included an automatic trigger known as "sequester" cuts if Congress attempted to bust those spending caps.

What a bunch of hyperpartisan assholes. Obama was still trying to keep the US above water after the worst economic downturn since the 1920's/1930's, and the Republicans were hog tying him. Now the GOP is making Wall Street nervous about inflation due to all the deficit spending (which is not being caused by the revenue drought caused by a historical global recession).

Meanwhile, Trump is happy.

Just signed Bill. Our Military will now be stronger than ever before. We love and need our Military and gave them everything — and more. First time this has happened in a long time. Also means JOBS, JOBS, JOBS!

Everything... and more! Watch out China... our military now has sharks with laser beams!

 

[SimpleDon]

I finally got my answer, at least about the Republicans, from Rand Paul.

They are not being hypocritical by voting for the permanent tax cuts for the wealthy and still railing against the budget deficit. They are being ideologically consistent.

The tax cuts are returning money to the wealthy that is theirs, because they know better how to spend the money. Instead of it being used for defense, building roads and schools, caring for the elderly, poor children and the disabled all of whom should take care of themselves, etc., all of the frivolousness and wasteful things that the government spends money on.

(Rand had visual aids of examples of the wasteful spending! Clearly and forcibly establishing the point that if 0.000006% of the federal government's spending is wasteful, all of it must be.)

And by depriving the government of this money it will bring on the glorious day when the government disappears and is replaced by the self-regulating, self-organizing free market and a widely dispersed, equity judiciary enforcing contracts so that instead of burdening companies and individuals with endless numbers of regulations telling them what to do, instead will burden them with countless, often conflicting, common law judgments that tell them what they should have done.

That complaints about how these votes will affect today's economy are thinking small because they are going to change today's economy into something better, and they can hardly wait for it to spontaneously appear, any day now.

In short, they aren't being hypocritical, they are being delusional.

And the Republicans who voted for the permanent tax cuts for the wealthy and then voted to keep the government open and spending big, i.e. the majority of Republicans in Congress, are being hypocritical.

 

[Jimmy Higgins]

I finally got my answer, at least about the Republicans, from Rand Paul.

They are not being hypocritical by voting for the permanent tax cuts for the wealthy and still railing against the budget deficit. They are being ideologically consistent.

The tax cuts are returning money to the wealthy that is theirs, because they know better how to spend the money. Instead of it being used for defense, building roads and schools, caring for the elderly, poor children and the disabled all of whom should take care of themselves, etc., all of the frivolousness and wasteful things that the government spends money on.

(Rand had visual aids of examples of the wasteful spending! Clearly and forcibly establishing the point that if 0.000006% of the federal government's spending is wasteful, all of it must be.)

And by depriving the government of this money it will bring on the glorious day when the government disappears and is replaced by the self-regulating, self-organizing free market and a widely dispersed, equity judiciary enforcing contracts so that instead of burdening companies and individuals with endless numbers of regulations telling them what to do, instead will burden them with countless, often conflicting, common law judgments that tell them what they should have done.

That complaints about how these votes will affect today's economy are thinking small because they are going to change today's economy into something better, and they can hardly wait for it to spontaneously appear, any day now.

In short, they aren't being hypocritical, they are being delusional.

And the Republicans who voted for the permanent tax cuts for the wealthy and then voted to keep the government open and spending big, i.e. the majority of Republicans in Congress, are being hypocritical.

This isn't about ideology (the Republicans lack any ideology and merely a partisan party), but actions. The hypocrisy are the Republicans that voted to hog tie Obama in 2011 with spending limitations... and then voted for this budget that got rid of that for the Republican President.