Free Market is signalling that the US has too little debt

[Lumpenproletariat]

It's all about "Jobs! Jobs! Jobs!"

It is possible to pay off a national debt. The question is under what conditions, if any, does it make sense.

But any analysis of debt per capita that does not also incorporate assets per capita is comparing apples to oranges, and is both economically and financially inappropriate.

I don't think that calculating the national debt per capita is very illuminating. It doesn't seem to be used for anything other than scaring people. And comparing the national debt, ~20 trillion dollars, to the national assets, ~3.1 trillion dollars is equally useless because the national assets are illiquid, to say the least. The best seem to be to compare the debt to the GDP, ~18 trillion dollars because if you were to try to pay down the debt you would do so by reducing GDP.

What you say about debt per capita and assets per capita is correct when you are talking about paying off an external debt. When your company owes money to the bank, an external debt, then what you said is true, the important considerations are how much debt do you have versus how much are you are worth.

But the national debt is still largely a debt that we owe to ourselves, an internal debt, if you will. The same debt that you are trying to pay off is also an asset for someone else in the country. The only way to pay off the debt is to destroy the asset. In fact, the national debt instruments, government bonds, are the vast majority of the national savings. This what you would destroy by trying to pay off the national debt, the national savings.

In practical terms the only way that you can pay off the national debt is to run a budget surplus, to raise taxes relative to spending. And for the government to take the surplus money generated and to buy a back the bonds that are outstanding or to not issue new bonds to replace the ones that mature.

Debt creates money. Paying off the debt destroys the money that had been created.

The drag on the economy of the increased taxes or reduced government spending, a distinction without a difference, combined with the loss in confidence from the destruction of the private savings is a sure recipe for a depression, which is what has happened the seven times that the US has tried to pay down the national debt.

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Part of the national debt is held by countries as a result of the clearing of our rather substantial trade deficit. Conversely you could also pay off the national debt by running a large trade surplus. If you could run it without destroying world trade. See the Tariff Act of 1930, commonly known as the Smoot Hawley Act before trying this.

So, the times that we could pay off the national debt are limited to when we have high levels of inflation, when we want to eliminate money in the economy. To belabor the point, when the federal government runs a budget deficit it creates money and spends it into the economy and it increases demand. When it runs a budget surplus it removes money from the economy and it decreases demand. Tax increases are the most effective inflation fighters that exist.

But this isn't the complete story.

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If you can stick with me for just a while longer I will try to explain what I have finally just come to understandard. Because you have a good grasp of orthodox economics, I value your comments.

Inflation isn't created by the Fed printing too much money, sorry Irwin Fischer's money quantity theory of inflation and Ron Paul's conspiracy theories. And demand exceeding supply only creates inflation in the short term, the modern, industrial economy reacts to increase supply relatively quickly. Demand exceeding supply is what Keynes called "semi-inflation."

The structural factor that determines the level of inflation in the economy is the income distribution.

This is really simple. The rich have a greater propensity to save. If you favor profits over wages and high income inequality by lowering taxes on the rich and by not supporting workers in wage negotiations more of the nation's income will go to the rich and into savings and out of the economy. You will have less economic activity, lower effective demand, lower likelihood of inflation, lower growth, less investment, more private debt and more excess financial capital causing instability in the financial sector as the capital chases returns in a moribund economy.

The non-rich have a greater propensity to spend. If you intentionally redistribute income through taxation and you support workers in their wage negotiations to lower income inequality more of the nation's income will go to the non-rich and will be spent in the economy. You will have more economic activity, more effective demand, a greater tendency for inflation, higher growth, more investment, less private debt and less excess financial capital and a more stable financial sector.

The important point is that there is no natural, correct income distribution determined by the invisible hand. Government economic policies of taxation and the support for workers wage demands* determines the income distribution. Not only do we get to determine the income distribution, we have to decide the income distribution.

Econ 101, basic economics, doesn't even try to understand this. Neither does mainstream academic economics, the neoclassical synthesis economics, at least in so far as I can tell.


* as well as possibly hundreds of less influential laws, regulations and policies, including the minimum wage, overtime and workweek regulations, child labor laws, tact encouragement of immigration whether legal or illegal, legal holidays, trade policies, capital controls, etc.

translation:

As long as everything is based on "JOBS! JOBS! JOBS! JOBS! JOBS!" there is no way to reduce the debt or to even stop it from going higher and higher.

("Demand" = the way to cause the "jobs" to happen. The only purpose of "demand" is to cause the needed "jobs.")

So the "Jobs! Jobs! Jobs! Jobs!" mantra forces us to keep running up the debt, without limit, until whatever happens happens.

And this doesn't just mean we could finally stop because we finally have created enough "Jobs" -- it means we have to keep running up debt in order to keep the "jobs" we've already created with the earlier debt, so that increased higher and higher debt is required just to sustain all those wonderful "jobs" the earlier debt has created for us.

 

[Lumpenproletariat]

Bank BAIL-IN coming to U.S.? to EU? Who will get wiped out when the next collapse comes?

(Instead of starting a new thread, I'll just stick this here. I want to know if anyone can explain the bank "bail-in" predictions. There are radio ads about this, and it's difficult to make sense of it.)


What is the bank BAIL-IN about? Will the U.S. repeat what they did in Cyprus?

One thing everyone agrees on: Another major economic collapse is coming, and another bank bail-out or worse will be necessary to fix it.

But next time, we're being told, it will be a bank BAIL-IN rather than a bail-OUT.

There are many sensationalist articles/blogs/websites about this, and maybe it's mostly paranoia, and the alarmists are all trying to attract customers to their investment programs, so maybe it's only hype?

Cyprus was a test-case, which worked well enough that now other countries have their bail-in program in place for when the crisis happens. And depositors will take a haircut.

Here's one typical blog warning of the disaster which will hit depositors (it's mostly a promotional for their newsletter and investment product):

http://gainspainscapital.com/2016/03/24/the-cyprus-bail-in-template-is-coming-to-a-bank-near-you/i

The Cyprus “Bail-In” Template is Coming to a Bank Near You
The Phoenix March 24, 2016
Deposits That Go To Zero and Capital Controls for Two Years

Canada has joined the “bail-in” posse.

Canada will introduce legislation to implement a “bail-in” regime for systemically important banks that would shift some of the responsibility for propping up failing institutions to creditors.

The proposed plan outlined in the federal budget released on Tuesday would allow authorities to convert eligible long-term debt of a failing lender into common shares in order to recapitalize the bank, allowing it to remain operating.

Source: CNBC

The above story suggests that only bondholders would be at risk of a bail-in but we all know that is just some sugar to make what’s coming go down easier.

What’s coming?

Savings deposits being used to bail-in banks. Legislation is in the works in Canada, New Zealand, the UK, Germany, and even the US to do precisely this.
———————————————————————————
This whole template was laid out in Europe in 2012. Europe is ground zero for Keynesian Central Planning: a massive welfare state overseen by non-elected officials and Central Bankers who willingly break the rule of law whenever it suits them,

The guinea pig for the template was Cyprus.

The quick timeline for what happened in Cyprus is as follows:

June 25, 2012: Cyprus formally requests a bailout from the EU.
November 24, 2012: Cyprus announces it has reached an agreement with the EU the bailout process once Cyprus banks are examined by EU officials (ballpark estimate of capital needed is €17.5 billion).
February 25, 2013: Democratic Rally candidate Nicos Anastasiades wins Cypriot election defeating his opponent, an anti-austerity Communist.
March 16 2013: Cyprus announces the terms of its bail-in: a 6.75% confiscation of accounts under €100,000 and 9.9% for accounts larger than €100,000… a bank holiday is announced.
March 17 2013: emergency session of Parliament to vote on bailout/bail-in is postponed.
March 18 2013: Bank holiday extended until March 21 2013.
March 19 2013: Cyprus parliament rejects bail-in bill.
March 20 2013: Bank holiday extended until March 26 2013.
March 24 2013: Cash limits of €100 in withdrawals begin for largest banks in Cyprus.
March 25 2013: Bail-in deal agreed upon. Those depositors with over €100,000 either lose 40% of their money (Bank of Cyprus) or lose 60% (Laiki).
The most important thing we want you to focus on is how lies and propaganda were spread for months leading up to the collapse. Then in the space of a single weekend, the whole mess came unhinged and accounts were frozen.

One weekend. The process was not gradual. It was sudden and it was total: once it began in earnest, the banks were closed and you couldn’t get your money out.

Depositors lost between 40% and 60% of their savings above €100,000 as it was converted into bank equity. However, once it became equity, it could go to ZERO just like any stock.

That’s precisely what happened.

Account holders at Bank of Cyprus lost almost half their money above the €100,000 level, receiving stock in the bank as compensation. Those shares have since plummeted in value.

Uninsured depositors in Laiki Bank, also known as Cyprus Popular Bank, the nation’s second-largest lender, lost everything because the bank failed.

Source: NY TIMES.

As for those trying to get their money out of Cyprus, it took TWO YEARS before the final capital controls were lifted.

And the last remaining restrictions on transfers of money outside of Cyprus, imposed two years ago, will be lifted next month (APRIL 2015), said Chrystalla Georghadji, the governor of the country’s central bank.

Source: NY TIMES.

So… depositors had 40% to 60% of their deposits above €100,000 converted into bank equity… equity which could then go to ZERO… and those who tried to get their money out of the country had restrictions in place for TWO YEARS.

This is the template for what’s going to be implemented globally in the coming months. When push comes to shove, it will be taxpayers, NOT Central Banks who are on the hook for the next round of bailouts.

Indeed, we’ve uncovered a secret document outlining how the Feds plan to take hold of savings during the next round of the crisis to stop individuals from getting their money out.

Several websites say there's a plan in place do this in the EU. And here's one predicting it will happen in the U.S.
https://www.moneymetals.com/news/2015/04/15/fdic-plots-a-bank-heist-involving-your-accounts-000694


Is it only "uninsured" accounts that are in danger? What are those? Why would anyone leave their savings in an account that's not insured or protected from this possibility? CD accounts are all "insured," aren't they?

In the U.S. does this mean that no account under $250,000 will be affected? Do rich people actually keep some of their "savings" in a regular bank savings account or CD?

Was it only a few rich people who were hurt by the Cyprus bail-in? Was the damage to the bottom half of depositors only that they couldn't withdraw their money for awhile, or had to put up with withdrawal limits?

This doesn't make sense. All the accounts subject to this "bail-in" confiscation would simply be closed or drawn down by the depositors -- they would not even be there anymore. Even if the bail-in worked in Cyprus, because it was done suddenly, how could that happen anywhere else, now that those at risk know to close their accounts, or reduce them down to below the safe level?

 

[ksen]

Radio ads have also been saying hyperinflation is just around the corner for years...so meh.