The British government has a plan to stop borrowing money

[Hawkingfan]

If I choose #4 it precludes me from spending it on #s 1, 2, 3 and 5.

No, it doesn't. Since you are now OWED $50,000, you may spend that $50,000 you are now OWED on #'s 1,2,3, and 5 all you want.

 

[T.G.G. Moogly]

I understand all that. So we are in agreement I take it.

I thought you didn't understand the difference between countries with sovereign currency and households.

No, I understand the ability to print one's own currency. How much value that creates that a person or nation is willing to obtain at a cost is another matter.

I'm asking if we agree that when a nation changes the valuation of it's currency, someone is getting screwed out of money they are owed, value they thought they had. You seem to be saying that's just the way the business ball bounces. But we agree don't we?

 

[dismal]

If I choose #4 it precludes me from spending it on #s 1, 2, 3 and 5.

No, it doesn't. Since you are now OWED $50,000, you may spend that $50,000 you are now OWED on #'s 1,2,3, and 5 all you want.

But I don't have it anymore. I gave it to the US government.

At some point the US govt will likely give it back and I can spend it, but on that day the US govt will have 50,000+interest less to spend on something than it would have if it did not have to pay me back.

 

[Horatio Parker]

I thought you didn't understand the difference between countries with sovereign currency and households.

No, I understand the ability to print one's own currency. How much value that creates that a person or nation is willing to obtain at a cost is another matter.

I'm asking if we agree that when a nation changes the valuation of it's currency, someone is getting screwed out of money they are owed, value they thought they had. You seem to be saying that's just the way the business ball bounces. But we agree don't we?

Yes.

 

[SimpleDon]

What do suppose causes growth if not current spending? Magic?

Define "growth".

For example, which of these scenarios results in more growth,

1) The government does nothing.
2) The government borrows $10,000,000 and sets it on fire
3) The government borrows $10,000,000 and pays 100 people to dig a big hole, then borrows another $10,000,000 and pays 100 people to fill in the hole

Growth is an increase in the capacity of the economy to produce goods and services for consumption.

The answer to your question of what results in more growth is the economist's cop out, it depends on the state of the economy.

(Ten or twenty million dollars is not even a drop in the bucket in an eighteen trillion dollar economy. None of the options that you gave will have any measurable impact on the economy. But let's go with the intent of the question and pretend that they would)

Number 3 will create growth if we are not at general equilibrium, that is, full employment and full capacity utilization. It will create inflation if we are at general equilibrium.

Number 2 will almost always result in less growth because you are taking money out of the economy. But if the economy is experiencing inflation this will reduce the inflation and that could lead to more real growth, depending on the state of the economy.

If number 1 is meant in the sense of the government continuing to do what they were doing then this answer would be that the economy won't be impacted by any additional effects from the government's actions, obviously. The economy will grow or shrink depending on the government's previous standing actions and the state of the economy.

If you meant it that the government would surrender its role in defining and controlling the economy and to stop producing and destroying money, in a word, anarchy, then it would result in the shrinkage of the economy. One of the two major reasons that we have government is to define and to control the economy. The natural form of the economy without government is the primitive pre-tribal, caveman economy. There is no going back.

 

[SimpleDon]

I don't understand economy. If money is just a fiction we invented, why do we need to swim in debt to make things work?

(I probably just asked the only question economists can't answer.)

Short answer, debt is what creates money.

You don't want my long answer.

 

[SimpleDon]

When else is spending for growth supposed to occur if not currently?

The question is what long term assets are being bought with it?

The economy exists to produce goods for consumption. All investment has consumption as its goal.

 

[dismal]

Define "growth".

For example, which of these scenarios results in more growth,

1) The government does nothing.
2) The government borrows $10,000,000 and sets it on fire
3) The government borrows $10,000,000 and pays 100 people to dig a big hole, then borrows another $10,000,000 and pays 100 people to fill in the hole

Growth is an increase in the capacity of the economy to produce goods and services for consumption.

The answer to your question of what results in more growth is the economist's cop out, it depends on the state of the economy.

(Ten or twenty million dollars is not even a drop in the bucket in an eighteen trillion dollar economy. None of the options that you gave will have any measurable impact on the economy. But let's go with the intent of the question and pretend that they would)

Number 3 will create growth if we are not at general equilibrium, that is, full employment and full capacity utilization. It will create inflation if we are at general equilibrium.

Number 2 will almost always result in less growth because you are taking money out of the economy. But if the economy is experiencing inflation this will reduce the inflation and that could lead to more real growth, depending on the state of the economy.

If number 1 is meant in the sense of the government continuing to do what they were doing then this answer would be that the economy won't be impacted by any additional effects from the government's actions, obviously. The economy will grow or shrink depending on the government's previous standing actions and the state of the economy.

If you meant it that the government would surrender its role in defining and controlling the economy and to stop producing and destroying money, in a word, anarchy, then it would result in the shrinkage of the economy. One of the two major reasons that we have government is to define and to control the economy. The natural form of the economy without government is the primitive pre-tribal, caveman economy. There is no going back.

If you agree Number 2 takes money out of the economy, doesn't the government borrowing the $10,000,000 in #3 also take money out of the economy?

If the government is simultaneously taking money out of the economy and putting the same amount money back into the economy how is it different than #1?

Other than we got some filled in holes instead of whatever else that money may have been spent on and whatever else that labor may have been applied to produce.

Short answer, debt is what creates money.

How do you reconcile this with your claim that #2 takes money out of the economy? Debt was created.

 

[SimpleDon]

More interesting than this the Bank of England's push to re-regulate the banks along the lines of our GIass-Steagall regulations that we did away with in 1999, ushering in the deregulation delusion and leading directly to the Great Financial Crisis and Recession of 2008.

Ring Fencing regulations. See here.

 

[coloradoatheist]

More interesting than this the Bank of England's push to re-regulate the banks along the lines of our GIass-Steagall regulations that we did away with in 1999, ushering in the deregulation delusion and leading directly to the Great Financial Crisis and Recession of 2008.

Ring Fencing regulations. See here.

And it's like regulating UFOs, I don't think it will hurt much but it wouldn't have helped. The crisis was caused by a huge number of factors coming together to produce a system that everybody including government was happy and people gambled and then lost. It wasn't de-regulation, but if you want to blame regulation than it would be not regulating the right thing. However the capitalism system in general is on the principle of trying things and then finding out things that didn't work and avoiding them in the future. We are in that stage with housing.

 

[SimpleDon]

Growth is an increase in the capacity of the economy to produce goods and services for consumption.

The answer to your question of what results in more growth is the economist's cop out, it depends on the state of the economy.

(Ten or twenty million dollars is not even a drop in the bucket in an eighteen trillion dollar economy. None of the options that you gave will have any measurable impact on the economy. But let's go with the intent of the question and pretend that they would)

Number 3 will create growth if we are not at general equilibrium, that is, full employment and full capacity utilization. It will create inflation if we are at general equilibrium.

Number 2 will almost always result in less growth because you are taking money out of the economy. But if the economy is experiencing inflation this will reduce the inflation and that could lead to more real growth, depending on the state of the economy.

If number 1 is meant in the sense of the government continuing to do what they were doing then this answer would be that the economy won't be impacted by any additional effects from the government's actions, obviously. The economy will grow or shrink depending on the government's previous standing actions and the state of the economy.

If you meant it that the government would surrender its role in defining and controlling the economy and to stop producing and destroying money, in a word, anarchy, then it would result in the shrinkage of the economy. One of the two major reasons that we have government is to define and to control the economy. The natural form of the economy without government is the primitive pre-tribal, caveman economy. There is no going back.

If you agree Number 2 takes money out of the economy, doesn't the government borrowing the $10,000,000 in #3 also take money out of the economy?

If the government is simultaneously taking money out of the economy and putting the same amount money back into the economy how is it different than #1?

Other than we got some filled in holes instead of whatever else that money may have been spent on and whatever else that labor may have been applied to produce.

Short answer, debt is what creates money.

How do you reconcile this with your claim that #2 takes money out of the economy? Debt was created.

I was trying to answer your contrived question as the best that I could. There is no reason for the government to borrow money, it can create any amount of money that is required. The government in the US is required by statute to borrow money to finance its budget deficit, but there is no real reason to do this.

You are right, when the government borrows money from the economy and then spends that same amount back in, #3, the net impact wouldn't be anything except for two things.

There is money created by the debt. The money that is spent and the Treasury Bill that was sold to raise the money. The owner of the ten million dollar Treasury bill certainly believes that he still has ten million dollars. And the government certainly spent ten million dollars to dig the holes.

And two, the net effect was to convert money that was being held as an investment into consumption spending. The purchaser of the Treasury bill was seeking an investment not consumption,

If you consider number 2 then nothing has happened. The government borrowing the ten million dollars created money and then they destroyed the same amount of money. So I was wrong about 2.

Whether or not the government has to borrow the money doesn't change number 1 or 3. The best way to think of it is that the government spending money always creates money and the government destroys money when it taxes. Then if the government spends more than it taxes, that is it runs a deficit, it puts money into the economy and it increases growth. Conversely, if the government taxes more than it spends, that is it runs a surplus, then it takes money out of the economy and it decreases growth.

 

[coloradoatheist]

And the difference between the two sides is that one side believes individuals can better decide how to spend money compared to the government decided where to spend money

 

[dismal]

There is money created by the debt. The money that is spent and the Treasury Bill that was sold to raise the money. The owner of the ten million dollar Treasury bill certainly believes that he still has ten million dollars. And the government certainly spent ten million dollars to dig the holes.

Huh? When the government borrows money it adds cash and a liability. The lender on the other hand loses the exact same amount of cash and gains an asset that is exactly equal to the liability. There is no creation of net cash or net assets in the system.

And two, the net effect was to convert money that was being held as an investment into consumption spending. The purchaser of the Treasury bill was seeking an investment not consumption,

The money in the example was invested. In filled in holes. Capital and labor were expended to produce something.

Further, without investment our ability to produce and hence to consume would be dramatically less. We'd be scratching out a subsistence level of prosperity. If you believe something like "investment is bad" you believe some really wack shit.

Of course, no investing is better than investing in filled in holes. If we devoted all of our capital and labor to producing filled in holes we wouldn't even make to the subsistence level.

If you consider number 2 then nothing has happened. The government borrowing the ten million dollars created money and then they destroyed the same amount of money. So I was wrong about 2.

You think if everyone took all their cash and lent it to the government (who promptly set it all on fire) everyone would have just as much money to spend as they did before?

Doesn't that sound like something a crazy person would say?

Do you want to send me all your money in return for a piece of paper where I promise to pay you back? Remember, you'll have just as much money to spend as before.

Buying a bond is spending money on something. You don't still have the money after you've bought it. You have the bond instead.

 

[bilby]

Countries that control their own currencies can devalue them, which makes their debt cheaper. That's the nub of how the Greek situation relates to this discussion. Greece has no control, cannot devalue, and so is crushed by the debt.

As opposed to places like Venezuela and Zimbabwe that are crushed by the devaluation.

Devaluation forces a nation to rely on internal resources more, as imports become more expensive (denominated in the devalued currency) and exports more lucrative.

If a nation is fairly self-sufficient, this boosts local producers, at the expense of foreign suppliers.

Where this falls down is when you either destroy the local producers, as Mugabe did in Zimbabwe; or your economy was living on imports because they had huge export revenues to spend that came from a single commodity, the value of which then collapsed, as happened to Venezuelan oil; or both, as Chavez 'reformed' non-oil production out of existence.

If you must compare a nation with a household, this is like the earner(s) in the household losing their job - they can still survive, but only if they can live on their own resources. If you can survive on what you grow in your backyard, then you needn't care about imports (shopping for groceries etc.); and you can survive without a source of exports (selling your labour to get wages).

Most households have only one or two 'exports', (jobs) that are subject to sudden drops in value to zero (unemployment).

Most nation states have many export opportunities, the value of which may vary rapidly, but rarely falls to zero in any one commodity or product, and is buffered against such falls by the diversity of their exports; and most nations also have sufficient primary production (stuff grown in, or dug up from, their backyard) to live without massive amounts of imports.

If you can grow all your food needs in your backyard, then you need worry much less about unemployment.

 

[T.G.G. Moogly]

And the difference between the two sides is that one side believes individuals can better decide how to spend money compared to the government decided where to spend money

That's a bit of a false distinction because those individuals are "the government," at least in western style democracies.

More importantly, those governments do not "create" money. They do print currency but that is not the same thing. They exchange units of value within and between their economies. The value of each of those trillions of units is ultimately determined by the consumers.

To say that a government has an endless supply of those units may be correct but it does not have an endless supply of value. That is something determined by the consumer of those units. If no one of importance wants any they are worthless.

 

[fromderinside]

And the difference between the two sides is that one side believes individuals can better decide how to spend money compared to the government decided where to spend money

That's a bit of a false distinction because those individuals are "the government," at least in western style democracies.

More importantly, those governments do not "create" money. They do print currency but that is not the same thing. They exchange units of value within and between their economies. The value of each of those trillions of units is ultimately determined by the consumers.

To say that a government has an endless supply of those units may be correct but it does not have an endless supply of value. That is something determined by the consumer of those units. If no one of importance wants any they are worthless.

British government has a responsibility to provide a suitable government for the society, including business, not just for business. Government prints money as part of its responsibility. Part of the justification for that printing should be to maintain the infrastructure, social systems, and defense system for those governed. Should those responsibilities be accounted like business? I think not.

Improving quality of life is not something that works like improving the quality of a product. In the former it generally requires more integration among the customers while in the latter it tends to reduce the price to customers. Clearly integration is an additive thing while simplifying a product is a reductive thing. Applying thermodynamics suggests one takes more energy, costs more, while the other takes less energy, costs less, suggesting similar energy , monetary, relations.

 

[dismal]

That's a bit of a false distinction because those individuals are "the government," at least in western style democracies.

More importantly, those governments do not "create" money. They do print currency but that is not the same thing. They exchange units of value within and between their economies. The value of each of those trillions of units is ultimately determined by the consumers.

To say that a government has an endless supply of those units may be correct but it does not have an endless supply of value. That is something determined by the consumer of those units. If no one of importance wants any they are worthless.

British government has a responsibility to provide a suitable government for the society, including business, not just for business. Government prints money as part of its responsibility. Part of the justification for that printing should be to maintain the infrastructure, social systems, and defense system for those governed. Should those responsibilities be accounted like business? I think not.

Improving quality of life is not something that works like improving the quality of a product. In the former it generally requires more integration among the customers while in the latter it tends to reduce the price to customers. Clearly integration is an additive thing while simplifying a product is a reductive thing. Applying thermodynamics suggests one takes more energy, costs more, while the other takes less energy, costs less, suggesting similar energy , monetary, relations.

The British government did not say it was going to stop printing money.