- #176
PeterDonis
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BWV said:nothing will wipe put debt faster than a hyperinflation. High inflation has many other problems of course
Um, yes, that's one way of putting it.
BWV said:nothing will wipe put debt faster than a hyperinflation. High inflation has many other problems of course
Milton Friedman said:It is my view that what is important is cutting government spending, however spending is financed. A so-called deficit is a disguised and hidden form of taxation. The real burden on the public is what government spends (and mandates others to spend). As I have said repeatedly, I would rather have government spend one trillion dollars with a deficit of a half a trillion than have government spend two trillion dollars with no deficit.
BWV said:The current deficit/gdp is about 2.8%, which is easily sustainable with modest growth assumptions- say, 2% real gdp growth and 2% inflation.
PeterDonis said:Now you're talking about real GDP instead of nominal GDP. Which is it? If you want to talk about real GDP, then you can't just throw around debt to GDP ratio numbers, because those are nominal. You have to actually look at whether wealth is being created or destroyed, on net, eliminating dollars from the analysis entirely. 2% real GDP growth won't be enough if the government's activities, on net, are destroying more than 2% of the country's wealth per year. The deficit/GDP ratio tells you nothing about that.
BWV said:Presumably whatever wealth the government is destroying would be netted in the real GDP figures , assuming they are measured accurately
Social Security is the largest federal program, paying benefits to retired workers and their dependents and survivors through the Old-Age and Survivors Insurance program and to disabled workers and their dependents through the Disability Insurance program. Those benefits are financed primarily by payroll taxes. CBO projects Social Security’s finances under current law and analyzes a wide variety of possible changes to the law.
The 2015 Long-Term Budget Outlook Report June 16, 2015
If current laws remained generally unchanged, federal debt held by the public would exceed 100 percent of GDP by 2040 and continue on an upward path relative to the size of the economy—a trend that could not be sustained indefinitely.
About one-sixth of federal spending goes to national defense. CBO estimates the budgetary effects of legislation related to national security and assesses the cost-effectiveness of current and proposed defense programs. CBO also analyzes federal programs and issues related to veterans.
kinimod said:instead of money "laying around", government prefers to motivate people to give it to the government. Government takes this money and locks it (e.g. by selling a bond). The people then own a piece of paper (the bond with some promises of benefits), the government owns the money.
PeterDonis said:Selling bonds to private individuals is one way the government can go into debt, yes; but it's not the major one. The major one is the government selling Treasury bills to the Federal Reserve, which prints the money that is used to buy them. The money gets spent by the government; the Fed holds the T-bills as securities. This is how the Fed manages the money supply (or at least one way it does); when it wants to increase the money supply, it prints money and buys government T-bills with it; when it wants to decrease the money supply, it sells T-bills back to the government and "retires" the money received for them. (AFAIK the Fed hasn't done this in quite some time.)
kinimod said:it would be fantastic if the government took even more debt on itself, e.g. by printing money as described above.
kinimod said:it would be fantastic if the government took even more debt on itself, e.g. by printing money as described above.
Then they would use the money to hire private contractors and companies to build roads, railways, bridges, etc.
kinimod said:there's a sudden, abrupt injection of new excess funds in the private environment among people
kinimod said:When people are too rich suddenly, all producers, businesspeople and entrepreneurs raise prices
PeterDonis said:Selling bonds to private individuals is one way the government can go into debt, yes; but it's not the major one. The major one is the government selling Treasury bills to the Federal Reserve, which prints the money that is used to buy them. The money gets spent by the government; the Fed holds the T-bills as securities. This is how the Fed manages the money supply (or at least one way it does); when it wants to increase the money supply, it prints money and buys government T-bills with it; when it wants to decrease the money supply, it sells T-bills back to the government and "retires" the money received for them. (AFAIK the Fed hasn't done this in quite some time.)
PeterDonis said:No, there isn't. Money is not wealth. Printing money does not create wealth; it just redistributes it. Economically, it's the same as if the government taxed everyone and then gave the tax revenues to whoever they give the printed money to.
You are misdescribing what happens. What happens is that, when the money supply increases without a corresponding increase in actual wealth, everybody has to raise prices, because the real value of the money they are receiving has decreased--it takes more money to buy the same amount of wealth. Nobody is actually getting richer.
BWV said:The fed increases (decreases) liquidity in the banking system by buying (selling) T-bills from the private sector.
BWV said:Aside from the recent spike due to QE (which again was purchases from the private sector) fed holdings of government debt have been a very small fraction of the total debt outstanding.
phyzguy said:People are sitting around unemployed when they could be doing productive work.
phyzguy said:Factory capacity is sitting idle that could be producing goods.
phyzguy said:There are many historical examples that prove this.
phyzguy said:the economy as a whole is producing far less than it could.
phyzguy said:I disagree. Name a country where the fundamental infrastructure (roads, water supply, sewage removal and treatment, ...) has been built and financed by private companies.
BWV said:The value of money and government debt are tied together - money in modern economies primarily exists only in electronic form within the banking system. it is the banking system through the mechanics of fractional reserve banking, not the Treasury that usually exerts the greatest influence on the money supply.
BWV said:The value gov debt flows from confidence in the stability and adequacy of the future tax revenues necessary to service government debts.
phyzguy said:Your faith in the free market economy is touching.
phyzguy said:I wish it were as all-powerful and self-correcting as you make it sound.
phyzguy said:If it is, explain to me why we have economic depressions.
phyzguy said:In 1929, the US government was a small part of the economy; government expenditures were only 5% of GDP. So it is hard to see how you can blame the great depression on government manipulation.
phyzguy said:The reality is that since WW2 when we have had more government intervention in the economy, that there have been fewer economic downturns, and they have been shallower than they were when the free market economy reigned supreme.
phyzguy said:It is obvious that the free market economy has significant positive feedback built into it
As everyone here knows, in their Monetary History Friedman and Schwartz made the case that the economic collapse of 1929-33 was the product of the nation's monetary mechanism gone wrong. Contradicting the received wisdom at the time that they wrote, which held that money was a passive player in the events of the 1930s, Friedman and Schwartz argued that "the contraction is in fact a tragic testimonial to the importance of monetary forces"...
.
.. so that the Great Depression can reasonably be described as having been caused by monetary forces. ...
...You're right, we did it. We're very sorry. But thanks to you, we won't do it again.
mheslep said:The idea that free market failures caused the Great Depression and that the federal government only acted as a rescuing hero is a myth, a quite outdated myth at this time. The actions of the Federal Reserve were the primary cause of the GD, not the other way around. That is, the federal government turned a recession into the Depression by cutting off the money supply and thereby forced the banks out of business. In addition government enacted the 1930 tariff laws that destroyed trade, so that retaliation cut off US farmers from foreign markets, etc, etc.
Fed Chair Ben Bernanke Regarding the Great Depression, 2002Yes there was a stock market bubble and collapse in '29; there will inevitably be more in the future. But these are mere economic blips compared to what government malpractice has done the economy.
BWV said:the issuance of notes are not the money that matters - its the creation of money through credit.
BWV said:The only thing the Fed adds to the system is a lender of last resort to stem panics and bank runs.
phyzguy said:It amazes me that on a topic so important to the human race, namely economics, that we don't even agree on the very basics.
phyzguy said:With the computer power we have today, why can't we build a detailed model of the economy so we can run scenarios?
phyzguy said:Until we can do something like that, each of us will continue to revise history to adhere to whatever model we think is correct.
PeterDonis said:The conditions for effective cooperation among large numbers of people are very hard to meet
Imager said:There is the Milron Friedman "Pencil" video, explaining how large numbers of people do cooperate: