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> What is so Bad about the Defict?!?!, And why is everyone afraid of it?
brinn
post Nov 5 2010, 02:41 AM
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It seems that the U.S. and much of Europe has become obsessed with deficits, debt reduction and austerity. The question for debate is simple:

What do you see as the negative economic effects of persistent deficits?
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Ted
post Jan 5 2011, 06:18 PM
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QUOTE(Belshazzar @ Jan 5 2011, 12:05 PM) *
I found this series of posts pretty interesting:
What Changed in the Late '70s?
Of Deficits and Inflation, Part 2

It looks like deficits and inflation have become disconnected since the '80s. Is it possible that this is in large part due to the trade deficit? What kind of effect would that have on inflation?

This may or may not be correct. We have not had significant inflation since Reagan put an end to it in the 80s. But what is being discussed here is not the relationship between inflation and budget deficits but what would be the effect of printing trillions of $$ to retire the existing debt and fund deficits.

And the current situation is not a good example of the potential for inflation since we are in an historic downturn. If we were not in this downturn deficit spending would be more important.

And the question Hobbes and I keep asking does not get answered. What happens when this is implemented to the value of the dollar? To imagine that we can do what MMT advocates without affecting the value of the dollar is foolhardy at best…….

This post has been edited by Ted: Jan 5 2011, 06:22 PM
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JohnfrmCleveland
post Jan 5 2011, 07:08 PM
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QUOTE(Ted @ Jan 5 2011, 01:18 PM) *
QUOTE(Belshazzar @ Jan 5 2011, 12:05 PM) *
I found this series of posts pretty interesting:
What Changed in the Late '70s?
Of Deficits and Inflation, Part 2

It looks like deficits and inflation have become disconnected since the '80s. Is it possible that this is in large part due to the trade deficit? What kind of effect would that have on inflation?

This may or may not be correct. We have not had significant inflation since Reagan put an end to it in the 80s. But what is being discussed here is not the relationship between inflation and budget deficits but what would be the effect of printing trillions of $$ to retire the existing debt and fund deficits.

And the current situation is not a good example of the potential for inflation since we are in an historic downturn. If we were not in this downturn deficit spending would be more important.

And the question Hobbes and I keep asking does not get answered. What happens when this is implemented to the value of the dollar? To imagine that we can do what MMT advocates without affecting the value of the dollar is foolhardy at best…….


Why is the situation so different? We came out of a recession with big tax cuts and big deficit spending. Reagan ballooned the deficit, and all we got for it was a bunch of weapons - it might as well have been workfare. But it worked. Deficits have not led to inflation yet, and it's been 30 years, a pretty good hunk of time to wait for "the inevitable."

And who is talking about retiring the debt, anyway? And why do you insist that it is retired all in one shot? Ted, you keep putting this in terms of a sudden, massive flood of dollars - nobody is advocating that. The real question is, do you think that a judicious use of deficit spending is OK?
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Ted
post Jan 5 2011, 07:52 PM
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QUOTE
jfc
Why is the situation so different? We came out of a recession with big tax cuts and big deficit spending. Reagan ballooned the deficit, and all we got for it was a bunch of weapons - it might as well have been workfare. But it worked. Deficits have not led to inflation yet, and it's been 30 years, a pretty good hunk of time to wait for "the inevitable."


It’s the magnitude of the deficits and the state of the economy when they take place that is the issue. Deficits during a recession – esp. deep ones like the Reagan and current recession, seem to not lead to recession. But to imagine that we can balloon the deficit as we have done and then print money to pay it all off and finance future deficits is ridiculous.

QUOTE
And who is talking about retiring the debt, anyway? And why do you insist that it is retired all in one shot? Ted, you keep putting this in terms of a sudden, massive flood of dollars - nobody is advocating that. The real question is, do you think that a judicious use of deficit spending is OK?



Read what they are saying (the MMT crowd). The debt is financed with securities that (in most cases) do not have long maturities. If we stop issuing them we start printing at that rate. As I have shown we have already printed over 2 Trillion $ trying to get out of this mess we made for ourselves and many are worried about that (the 2 Trillion). So how do you go forward with this? How do you do “a little of this”. This is the MMT discussion.

And yes I think judicious use of deficit spending is OK in a recession. I also this administration has done too much and the wrong kind. The 987 Billion that did not do much was bad but the recent Bill was imo too much.
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brinn
post Jan 6 2011, 02:50 AM
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QUOTE(Ted)
Risk yes but your ponsi scheme insures rapid and significant price increases especially for all imported goods including oil. As the value of the currency drops all prices rise offsetting the “value” of most if not all of what you are doing and risking long term institutionalized inflation like we had under Carter. Its insanity.
Ted, you keep asserting this but you have little aside from your own assuredness to back up your opinion. If you are going to continue on this tact I respectfully request that you provide us with a reasonable explanation for why Japan’s currency is yet to collapse.

QUOTE(Ted)
Most economists with a brain consider inflation a far worse enemy than unemployment simply because it effects everyone and once institutionalized is very difficult to get rid of..
Inflation is far more benign than large scale unemployment. Any economist with a brain knows that.

QUOTE(Ted)
The idea that you can just print Trillions of $$ continuously and not have serious consequences is insane – especially for a country that cannot even drill its own oil…….
Please show me a specific quote where one of us crazy MMTers asserts that a government can print trillions endlessly without consequences. If you can’t or don’t, I’ll once again assume that you’re arguing with your own imagination again.

QUOTE(Belshazzar)
It looks like deficits and inflation have become disconnected since the '80s. Is it possible that this is in large part due to the trade deficit? What kind of effect would that have on inflation?
An excellent observation. The trade deficit was growing larger in the 80’s and this would certainly have an effect on the non-government sectors’ (domestic private sector plus foreign sector) ability to absorb massive deficits. If the trade deficit were large enough in relation to the deficit it is possible that the domestic private sector could experience deflation while the government runs a deficit.

QUOTE(Hobbes)
What does MMT have to say about the impact of the U.S. dollar's potential decline as the global currency? I have a supposition, but let's hear from the MMT crowd first....
Is this a realistic possibility? What country is going to step up and run the deficits required to support reserve currency status?
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Ted
post Jan 6 2011, 03:18 AM
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QUOTE
brinn
Ted, you keep asserting this but you have little aside from your own assuredness to back up your opinion. If you are going to continue on this tact I respectfully request that you provide us with a reasonable explanation for why Japan’s currency is yet to collapse.


No clue what you are referring to. Japan has surely not printed money to cover their deficit – in fact its may be the worst in the world….So what is it that we should emulate here?
QUOTE
Prime Minister Yukio Hatoyama’s resignation two days ago may hamper the ruling Democratic Party of Japan’s plan to cut government debt, the world’s largest, said Toyomi Kusano, president and chief executive officer at Kusano Global, a hedge-fund research firm in Tokyo. Finance Minister Naoto Kan, who said he will run for leadership of the DPJ, has pledged to hammer out this month a mid-term plan on improving finances.
What is bothering foreign investors the most is Japan’s debt issue and the related risk of Japan triggering the next sovereign debt crisis,” Kusano said in an interview
http://www.bloomberg.com/news/2010-06-04/n...lobal-says.html

QUOTE
Inflation is far more benign than large scale unemployment. Any economist with a brain knows that.


I disagree and you can show me likes if you like. Inflation effects all assets and all savings and hits those on fixed income the worst.

Please show me a specific quote where one of us crazy MMTers asserts that a government can print trillions endlessly without consequences. If you can’t or don’t, I’ll once again assume that you’re arguing with your own imagination again.

You and others in the MMT camp say there is no need for a deficit or for the Treasury to sell securities to finance a deficit. Are you saying this is not what you said?

QUOTE
QUOTE(Hobbes)
What does MMT have to say about the impact of the U.S. dollar's potential decline as the global currency? I have a supposition, but let's hear from the MMT crowd first....

Brinn
Is this a realistic possibility? What country is going to step up and run the deficits required to support reserve currency status?


Another non answer. Lets get a real answer and you tell us how printing Trillions of $$ will not effect the dollars value.
QUOTE
The US Fed Should Not Print Money and Debase the Dollar
by Anders Aslund | October 25th, 2010 | 09:27 am
The US Federal Reserve is preparing what could turn out to be one of its greatest follies since its defense of the gold standard during the Great Depression. Ben Bernanke, the Fed chairman, has signaled that next month the central bank could begin the process of printing hundreds of billions of dollars to buy US treasuries. The Fed, according to its supporters, wants to bring down medium-term interest rates to speed the national recovery…..

Since money printing has such a bad name, advocates of such a move are euphemistically calling it “quantitative easing.” As if to de-dramatize this monetary explosion and present it as a mere technicality, supporters of the action have even given it the nickname of QE2 (evoking the ocean cruiser Queen Elizabeth II), QE1 being what the Fed did in 2008–09. Despite the reassuring name, this is a very radical measure. It is not needed, and risks many negative consequences for both the United States and the world. Its supporters justify this monetary expansion with three arguments……

Fed Chairman Bernanke’s announcement about new likely quantitative easing was, by itself, enough to destabilize world currency markets. The dollar plunged, while almost all floating currencies have shot up, many sharply by 30 percent or more.
http://www.piie.com/realtime/?p=1799


What we don’t need is nutty policies that advocate printing money as a solution for slow growth with no real fear of inflation until its too late.




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Maybe Maybe Not
post Jan 6 2011, 11:18 AM
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QUOTE(JohnfrmCleveland @ Jan 5 2011, 02:08 PM) *
The real question is, do you think that a judicious use of deficit spending is OK?
I don't believe that really is the question here. And I have not heard anyone in this thread suggest deficit spending is never OK.

The "real" question is whether there is any reason for concern about our current level of deficit spending and debt. My apprehension of the position of MMT proponents here is that there should almost NEVER be concern about federal deficit spending or national debt because they are merely accounting entries reflecting "net saving desire/intention" in the non-government sector, and that in our fiat currency system the deficit/debt is merely the amount of money the federal government has created to match/represent real economic growth.

1) I haven't had any response to my question about the meaning and significance of "net saving desire/intention"; and,

2) It's a little disconcerting to discuss the real question, only to have MMT proponents fall back to "MMT doesn't propose any specific actions or policies, but merely describes the system" when what MMT proponents suggest is questioned. (E.g., Senexx's statement in post #656: "MMT does not formulate policy choice, that is exogenous. MMT simply explains what will happen based on the choices you make. MMN, I welcome your conversion to understanding the MMT constructs. That is all MMT is, a rational explanation of macroeconomics. What you do with them is up to your political ideology.")

3) The significance to an economy of the trust people have in the currency as a true represenatation of value cannot be overstated. (Not to mention the effect of our financial/economic policies on foreign trading partners.) Theoretically right, wrong, or indifferent, whatever we do that affects that trust will have practical consequences that cannot simply be dismissed because they may be inconsistent with our theory.
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pj4xtrader
post Jan 6 2011, 05:11 PM
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QUOTE(entspeak)
A stock's dollar value is based on the amount of dollars someone trades for it - usually based on the last amount paid. In the scenario you put forth, the stock value begins at zero - that is the premise you set. JfC buys the stock for $100, the value of the stock is now $100. Why? Because someone paid $100 dollars for it. It's incorrect to say that the dollar value of the stock returns to zero after the purchase. So, while you still have 301 assets, the "dollar value" is no longer $300, it is $400... the stock now has a value of $100 until someone decides they are unwilling to pay that much for it or is willing to pay something more for it. If there is a lack of interest at any given moment, that doesn't automatically zero out the 'dollar value'.

You are correct on the 'micro' level, for a given accounting period. The point that is illustrated by the model, is that on the 'macro' level, in any given accounting period, if all assets are sold for dollars, the most they could attracted is the total available dollars.

QUOTE(JfC)
I guess what I'm asking is, is the dollar value of NFAs always equal to HPM? If not, what else (besides HPM) adds to/subtracts from the dollar value of NFAs? And if NFAs are always equal to HPM, why do we bother including stocks, bonds, corporate paper, etc., when it seems that NFAs, for the sake of simplicity, could just be distilled down to HPM?

NFA (net financial assets) is a sum of all FA (financial assets). When we aggregate all sectors (government and non government), FAs net to zero. For every FA there is an equal and offsetting FL (financial liability). When we aggregate private sector FAs (private sector NFAs) all private sector created FAs are canceled out by the offsetting FLs, leaving only the government created FAs, since the offsetting FLs remain in the government sector. So while stocks are FAs, when aggregated, like bank deposits, they are offset by the corresponding FLs. So your view is correct, an reality, not for the sake of simplicity.

QUOTE(brinn)
No apologies necessary. Where did you find that definition of NFAs? I took a look through Wray's "Understanding Modern Money" and couldn't find a straightforward definition. I'm assuming its a term that was coined by Knapp, Innes, Lerner or Godley? As a finance guy I can tell you that the term is occasionally used in the context of non-profit accounting but, in that context, it is used as a substitute for net worth. I was rolling the concept of NFAs and HPM around in my head the other night and was having a hard time coming up with an example where the NFAs in the economy would be higher than HPM (as they most certainly could not be lower). Do you have a simple example that would illustrate this scenario?

The definition of FAs can be founded in most any dictionary, especially financial dictionaries. Again, NFA is simply the sum of FA. Mosler defines NFA as, total nfa= cash in circulation plus reserves at the fed plus tsy secs outstanding = the national debt. Like Jfc, your view was not functionally incorrect.

QUOTE(Ted)
Controllable how? You insure inflation and then say you will control it. By raising taxes I presume. So it feels good in the beginning then the inflation and higher taxes kills demand and we are back where we started but with built in inflation.

The national debt is an indication that the desire to save dollars is high. The national debt can, in fact, be called non government savings. Since the dollars used to buy treasury securities were non government savings held as reserves accounts, why do you assume that if those dollars are moved for security accounts back to reserve accounts that the non government will spend them. The Chinese central bank will not be likely to spend them or else lose the ability to peg the Yuan to the dollar, etc.. And the Fed can simply pay interest on the excess reserves and it would functionally be no different than the current status quo.

QUOTE(Ted)
Most economists with a brain consider inflation a far worse enemy than unemployment simply because it effects everyone and once institutionalized is very difficult to get rid of..

Currently, high systemic unemployment effects everyone economically and in ways that far out strip the economic costs. I am more than willing to delve deeper in this if that the direction everyone wishes to take the discussion.

QUOTE(Hobbes)
This is not true. Consider that the dollar value of collateral backed securities exceeds not only the total of all currency over the world, but exceed the actually value of all assets on earth as well. The value of stock is set only by the relatively few shares actually changing hands...it could easily exceed the dollars available to actually purchase them. Does that mean you'd actually get that value when you sold them? No. But that is their current value nonetheless.

Equity and valuation due not alter NFAs unless the government is involved.

QUOTE(Hobbes)
You have $200. I have a share of Google, purchased for, say, $100. You (or anyone else) is now willing to give me $200 for it. My stock is therefore worth $200. So, I have assets worth $200, and you still have the $200. Therefore aggregate NFA's are now $400. I didn't have to sell it to you to determine that value....I only needed to know that I could. NFA's therefore can and do increase in value outside of the actual money put into the system--there only needs to be enough money to buy those stocks actually being sold, but those sales determine the current value of all the other shares. To expand the example, there could be 10 other people hold that same stock, and you purchase 1 share for that $200. The other 9 shares would also then be value at $200, making the total NFA in the system now $2000, even though only $200 actually changed hands. These shares could all have started out at some value less than $200, and the increase in their value would be the aggregate increase in NFA's. This can and does exceed the amount of NFA's the government puts into the system, as demonstrating by the fact that the sum total value of stocks greatly exceeds the sum total of money available to purchase them...by about a factor of 20 to 1 or so. So even a small change in stock value can have a far greater influence on NFA than government spending.

A stock is a corporate liability. If the company wants to buy it back it has to pay $200. The asset and the liability sum to zero.


P.S. I will be traveling and will likely not be able to contribute for a little while.

This post has been edited by pj4xtrader: Jan 6 2011, 05:21 PM
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Ted
post Jan 6 2011, 06:31 PM
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QUOTE
pj4
And the Fed can simply pay interest on the excess reserves and it would functionally be no different than the current status quo.


So then tell me how this makes the huge deficit and the onerous interest payment any easier to bear?

All you are talking about is accounting for it differently. How about savings bonds?
QUOTE
Currently, high systemic unemployment effects everyone economically and in ways that far out strip the economic costs. I am more than willing to delve deeper in this if that the direction everyone wishes to take the discussion.


Feel free. Inflation is the worst outcome and QE or any MMT “solution” that involves printing money adds dramatically to the risk of inflation and loss of confidence in the currency.

Both of which are far worse than any temporary unemployment.

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Hobbes
post Jan 6 2011, 09:54 PM
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QUOTE(pj4xtrader @ Jan 6 2011, 11:11 AM) *
You are correct on the 'micro' level, for a given accounting period. The point that is illustrated by the model, is that on the 'macro' level, in any given accounting period, if all assets are sold for dollars, the most they could attracted is the total available dollars.


This is true, but it does not mean that their value can't exceed the amount of dollars available...because those dollars only chase the assets actually being sold at any given time. $1 could buy all the assets in the world, if they were all broken down into separate $1 chunks, each sold invidually at different points in time...but it would NOT mean that all assets in the world were only worth $1.

QUOTE
QUOTE(Hobbes)
This is not true. Consider that the dollar value of collateral backed securities exceeds not only the total of all currency over the world, but exceed the actually value of all assets on earth as well. The value of stock is set only by the relatively few shares actually changing hands...it could easily exceed the dollars available to actually purchase them. Does that mean you'd actually get that value when you sold them? No. But that is their current value nonetheless.

Equity and valuation due not alter NFAs unless the government is involved.


This sounds like we're getting back to the definition defining itself. If stocks are part of financial assets, then how could they not alter NFA's? Why wouldn't equity and valuation alter NFA's unless the government is involved? Either equity and valuation is considered, or it isn't. It wouldn't make any difference whether the government were involved or not...unless one were simply defining things to meet the definition.

QUOTE
A stock is a corporate liability. If the company wants to buy it back it has to pay $200. The asset and the liability sum to zero.


A stock is NOT a corporate liability....they don't have to buy it back. They have no obligation to do so with the holder. Again, it seems things are being defined to meet the definition, which is circular logic.

I suspect we're not going to get past this, though, and still not sure what it's ultimate relevance is. What is the answer to the question: so only the government can change NFA's, so what? It seems pertinent only to support other MMT definitions...I'm not sure I see any policy ramifications.

This post has been edited by Hobbes: Jan 6 2011, 09:57 PM
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Curmudgeon
post Jan 6 2011, 10:00 PM
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QUOTE
temporary unemployment

Such a quaint and forgotten concept!

I was having lunch on Sunday with a local politician who raised the question of why our new Governor Ric "da nerd" Snyder is opposed to the jobs that a Casino might bring to the area.

I remarked:
QUOTE(Curmudgeon)
He is a "Republican Businessman" and therefore he is innately unable to understand a business model such as a casino, a hotel, or a restaurant. It is so difficult to offshore the labor in such businesses!

Everyone involved in the conversation laughed!

"Temporary unemployment" would infer that there was a prospect of finding work... This is not the 1960's when recruiters came to the High Schools looking for hourly employees! This is 2010, and businessmen have learned that if they go to Asia, people are still willing to work for a dollar a day for a ten hour day. If I go on eBay and purchase something from China, there are neither taxes nor shipping charges. The pharmacy tech was telling me last night that he makes a very good hourly wage...somewhere around $14 per hour if I recall correctly.

I moved to this area because the factory offered me $90,000 per year as an hourly employee. Then the factory was sold...and closed...and dismantled...and the parts were auctioned off...and it is an unusable brownfield.

If a college grad thinks $14/hour is a "very good hourly wage," there is very little hope for good employment for high school grads.

When your boot straps have rotted, there is nothing left to pull yourself up by. The USO ad on my desk offers a Free Gift for a $10 donation. I can order an "American Flag" from them through the mail cheaper than I can purchase one at a local merchant.

This post has been edited by Curmudgeon: Jan 6 2011, 10:05 PM
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Ted
post Jan 6 2011, 10:14 PM
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QUOTE
"Temporary unemployment" would infer that there was a prospect of finding work... This is not the 1960's when recruiters came to the High Schools looking for hourly employees!


I assume you are referring to my statement. The comparison I am making here is to the current high unemployment to inflation. Would you trade lack of inflation (for high inflation) and a faster path back to the low unemployment we have seen sine the 80s?

Why. Inflation destroys the value of all assets.

Our employment issues have a lot more to do with our dismal education system and tax structure than the businessman going to china for low labor costs.

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brinn
post Jan 6 2011, 10:35 PM
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QUOTE(Ted)
No clue what you are referring to. Japan has surely not printed money to cover their deficit…
From Wiki: The Bank of Japan (BOJ) increased the commercial bank current account balance from ¥5 trillion yen to ¥35 trillion (approximately US $300 billion) over a 4 year period starting in March 2001. As well, the BOJ tripled the quantity of long-term Japan government bonds it could purchase on a monthly basis. Most recently, in early October 2010, the BOJ announced that it would examine the purchase of $60 billion in assets. This was an attempt to push the value of the yen versus the U.S. dollar down to stimulate the local economy by making their exports cheaper; it didn't work.So Ted, you’ve been insisting that the US QE and QE2 was printing money and that this would lead to inflation. Again, I ask, Why hasn’t Japan been able to force down the value of the Yen via “printing money”?

QUOTE
Prime Minister Yukio Hatoyama’s resignation two days ago may hamper the ruling Democratic Party of Japan’s plan to cut government debt, the world’s largest, said Toyomi Kusano, president and chief executive officer at Kusano Global, a hedge-fund research firm in Tokyo. Finance Minister Naoto Kan, who said he will run for leadership of the DPJ, has pledged to hammer out this month a mid-term plan on improving finances.
“What is bothering foreign investors the most is Japan’s debt issue and the related risk of Japan triggering the next sovereign debt crisis,” Kusano said in an interview
http://www.bloomberg.com/news/2010-06-04/n...lobal-says.html
Quite funny. Here’s a link to Bloomberg’s webpage showing Japanese government bond rates: http://www.bloomberg.com/markets/rates-bon...nt-bonds/japan/
Explain to me how this “debt issue” that Toyomi Kusano refers to is effecting bond yields.


QUOTE(Ted)
QUOTE(brinn)
Inflation is far more benign than large scale unemployment. Any economist with a brain knows that.

I disagree and you can show me likes [Sic] if you like. Inflation effects all assets and all savings and hits those on fixed income the worst.
You stated the premise that inflation was worse than unemployment and said any economist with a brain knows it. I’m asking you for links to support your claim. I have several that refute it and will be happy to post them after you supply me with the evidence to uphold your assertion.

QUOTE(Ted)
QUOTE(brinn)
Please show me a specific quote where one of us crazy MMTers asserts that a government can print trillions endlessly without consequences. If you can’t or don’t, I’ll once again assume that you’re arguing with your own imagination again.

You and others in the MMT camp say there is no need for a deficit or for the Treasury to sell securities to finance a deficit. Are you saying this is not what you said?
There is a need for a deficit. As a matter of fact, we’ve stated repeatedly that a cumulative deficit is required for private sector savings. Additionally, we have stated that bond sales are unnecessary for financing the deficit and that variations in the level of taxation are sufficient to maintain control over inflation. However, what you fail to understand is the difference between these statements and your assertion that we are all for “printing trillions endlessly and without consequence”. Fortunately, I’m confident that the vast majority of participants both in this thread and reading along understand the difference between the straw man you have established and the point we are trying to make.

QUOTE(Hobbes)
What does MMT have to say about the impact of the U.S. dollar's potential decline as the global currency? I have a supposition, but let's hear from the MMT crowd first....
I’m sorry I dismissed this question earlier. I’ll be happy to answer it but in order to do so I need you to give me some more info. What exactly do you mean when you ask for the “impact of the dollar’s potential decline as the global currency”? Are we talking about China and other foreign governments dumping dollars? Are we talking oil being sold in another currency denomination? If you can be more specific I’ll answer promptly.


QUOTE(MMN)
The "real" question is whether there is any reason for concern about our current level of deficit spending and debt. My apprehension of the position of MMT proponents here is that there should almost NEVER be concern about federal deficit spending or national debt because they are merely accounting entries reflecting "net saving desire/intention" in the non-government sector, and that in our fiat currency system the deficit/debt is merely the amount of money the federal government has created to match/represent real economic growth.
I’m disappointed that you would conclude this. Have we not made it clear that there are limits to deficit spending and these limits are real? Have we not attempted to explain that the limits of deficit spending are reached when the government has satisfied the savings desire of the non-government sector and has achieved a near elimination of the output gap? I expect this type of hyperbole from Ted but not from you.

Just to be clear, We explicitly are NOT saying that deficit spending can continue always and forever without consequence. A cumulative deficit is necessary but continuing deficits in the face of inflation will result in greater inflation!
QUOTE(MMN)
1) I haven't had any response to my question about the meaning and significance of "net saving desire/intention"
I don’t know what you mean by this and will have to go back through the thread and see what the context of this question was. I’m typing this at work so I don’t have access to the site currently.

QUOTE(MMN)
It's a little disconcerting to discuss the real question, only to have MMT proponents fall back to "MMT doesn't propose any specific actions or policies, but merely describes the system" when what MMT proponents suggest is questioned. (E.g., Senexx's statement in post #656: "MMT does not formulate policy choice, that is exogenous. MMT simply explains what will happen based on the choices you make. MMN, I welcome your conversion to understanding the MMT constructs. That is all MMT is, a rational explanation of macroeconomics. What you do with them is up to your political ideology.
I’m sorry you feel this way but this is truly the nature of MMT. As has been explained, at its most basic level, MMT is merely a description of the operational nature of fiat currencies. Whether you like it or not or believe it or not, the operational aspects of MMT are facts. The interesting part comes once this understanding of the mechanics is achieved. Once one understands how the economy and banking actually functions one can begin to play around with the variables and make policy recommendations based upon this understanding. I guess we should be clear when we are speaking of an operational aspect of the system (fact) or a policy position that is based upon opinion (opinion).

QUOTE(MMN)
The significance to an economy of the trust people have in the currency as a true representation of value cannot be overstated. (Not to mention the effect of our financial/economic policies on foreign trading partners.) Theoretically right, wrong, or indifferent, whatever we do that affects that trust will have practical consequences that cannot simply be dismissed because they may be inconsistent with our theory.
We certainly don’t dismiss these factors but rather attempt to place them within a clear framework of cause and effect relationships. If nothing else, MMT is extremely concerned with operational consistency and real-world applicability.

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Ted
post Jan 6 2011, 11:19 PM
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QUOTE
brinn
Most recently, in early October 2010, the BOJ announced that it would examine the purchase of $60 billion in assets. This was an attempt to push the value of the yen versus the U.S. dollar down to stimulate the local economy by making their exports cheaper; it didn't work.So Ted, you’ve been insisting that the US QE and QE2 was printing money and that this would lead to inflation. Again, I ask, Why hasn’t Japan been able to force down the value of the Yen via “printing money”?


So it didn’t work and they have an enormous deficit as well. So let me ask again what the heck are you referring to. They had massive bank problems in Japan – the banks are holding trillions in bad assets.

Let’s remember that the Japanese are not now and never have been the kind of consumers the US has. Their savings rate is high and people do not spend. What you have shown though is the QE and printing money does not work – so why are you advocating it? It’s Demand that we need and as we all know its Tax cuts that have worked in the past to stimulate demand….NOT printing money….
QUOTE
Explain to me how this “debt issue” that Toyomi Kusano refers to is effecting bond yields.


What is important is the magnitude of the debt. That’s why they call it a “debt crisis”. And so lets not go there…..
QUOTE
You stated the premise that inflation was worse than unemployment and said any economist with a brain knows it. I’m asking you for links to support your claim. I have several that refute it and will be happy to post them after you supply me with the evidence to uphold your assertion.


I have posted links. Did you read them? Clearly the Fed says this – are they wrong.?
QUOTE
There is a need for a deficit. As a matter of fact, we’ve stated repeatedly that a cumulative deficit is required for private sector savings. Additionally, we have stated that bond sales are unnecessary for financing the deficit and that variations in the level of taxation are sufficient to maintain control over inflation
.

OK so if we have a deficit and the interest required to finance it we are back to the main issue here. Big debt means we pay a large fraction of GDP in interest on debt – which by definition I and many others consider bad policy. And the idea that we can “just raise taxes” anytime we need to deal with inflation is ridiculous. Who in the Congress could do that? Even Obama only wants to shaft “the rich” and has promised NO TAX INCREASE for the middle class. So stop joking please.
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JohnfrmCleveland
post Jan 6 2011, 11:37 PM
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QUOTE(Hobbes @ Jan 6 2011, 04:54 PM) *
QUOTE
QUOTE(Hobbes)
This is not true. Consider that the dollar value of collateral backed securities exceeds not only the total of all currency over the world, but exceed the actually value of all assets on earth as well. The value of stock is set only by the relatively few shares actually changing hands...it could easily exceed the dollars available to actually purchase them. Does that mean you'd actually get that value when you sold them? No. But that is their current value nonetheless.

Equity and valuation due not alter NFAs unless the government is involved.


This sounds like we're getting back to the definition defining itself. If stocks are part of financial assets, then how could they not alter NFA's? Why wouldn't equity and valuation alter NFA's unless the government is involved? Either equity and valuation is considered, or it isn't. It wouldn't make any difference whether the government were involved or not...unless one were simply defining things to meet the definition.


I'm OK with that definition, because we have to settle on something. Every paradigm has its definitions, and sticking to those makes it easier to understand what is being said. I, too, am a little confused by the inclusion of stocks, especially since they somehow zero out on the ledger, but I don't think it's necessary to completely understand why this is so in order to move on and answer the thread's question (and a few others). After 730 or so posts, I sense that the thread will die if we don't move on to something else, and I don't want that to happen. So right now, I'm going with my old understanding - NFAs equal HPM - and for that matter, I'm just going to refer to them both as HPM, as I find it far more to the point.

But before we actually move on, I just have a few more loose ends to tie up about the mechanics of HPM and NFAs (sorry):

Alienated said a couple of things in post 699 that I'd like to discuss:
QUOTE
Most Fed operations, in contrast, alter HPM but not NFA. For example, when the Fed sells bonds, it debits banks' reserve accounts. NFA is unaffected because the non-government simply swaps one financial asset (reserves) for another (bonds). Likewise, the government has merely swapped one liability (bonds) for another (reserves). However, HPM is reduced, since reserves have been destroyed.


So are government bonds something that, while not HPM, affect the dollar value of NFAs? How should we be looking at these bonds?

QUOTE
Since, under current legislative requirements, the government has to match deficit spending with debt issuance, the overall impact of all these operations is to increase NFA but leave HPM unaffected. The deficit expenditure, considered in isolation, causes an increase in HPM and NFA equal to the amount of the deficit. The subsequent debt issuance eliminates the extra HPM by exchanging it for a different financial asset, bonds. Overall, NFA increase by the amount of the deficit and HPM remains unaltered.


I was unaware that the U.S. had such a legal requirement - if anybody knows more about this legislation, can they please give us a link?
Also, this sounds like our HPM supply is not increased by this manner of deficit spending. If this is true, what is the mechanism for increasing the amount of HPM in play?

Theoretical question: if we increase our production by $100 billion, does the government have to add $100 billion of HPM to keep prices the same (remain at a steady state)? Or can they add a fraction of that amount, and allow another mechanism (say, private sector banking) to "increase" the money supply to the same effect? (I realize that production should follow govt. spending, but it's still easier for me to visualize it the other way around.)
_________________________

Once we get past this NFA thing, I'd like to talk more about trade deficits and domestic saving, because trade deficits still don't feel right to me.
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Hobbes
post Jan 7 2011, 12:33 AM
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QUOTE(brinn @ Jan 6 2011, 04:35 PM) *
QUOTE(Hobbes)
What does MMT have to say about the impact of the U.S. dollar's potential decline as the global currency? I have a supposition, but let's hear from the MMT crowd first....
I’m sorry I dismissed this question earlier. I’ll be happy to answer it but in order to do so I need you to give me some more info. What exactly do you mean when you ask for the “impact of the dollar’s potential decline as the global currency”? Are we talking about China and other foreign governments dumping dollars? Are we talking oil being sold in another currency denomination? If you can be more specific I’ll answer promptly.


The latter (although I think then the former could then come into play). What I was referring to is the potential decline of the U.S. Dollar as THE global currency, of which oil being purchased in U.S. dollars as a prime example. This has been a much in the news recently aspect of currency/monetary policy which has, as yet, not been discussed in this thread.

QUOTE(JfC)
I'm OK with that definition, because we have to settle on something. Every paradigm has its definitions, and sticking to those makes it easier to understand what is being said. I, too, am a little confused by the inclusion of stocks, especially since they somehow zero out on the ledger, but I don't think it's necessary to completely understand why this is so in order to move on and answer the thread's question (and a few others). After 730 or so posts, I sense that the thread will die if we don't move on to something else, and I don't want that to happen. So right now, I'm going with my old understanding - NFAs equal HPM - and for that matter, I'm just going to refer to them both as HPM, as I find it far more to the point


I'm fine with that, and in agreement that we're probably at the point where we just need to establish a definition and move on.

This post has been edited by Hobbes: Jan 7 2011, 12:37 AM
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Maybe Maybe Not
post Jan 7 2011, 01:21 AM
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QUOTE(brinn @ Jan 6 2011, 05:35 PM) *
QUOTE(MMN)
The "real" question is whether there is any reason for concern about our current level of deficit spending and debt. My apprehension of the position of MMT proponents here is that there should almost NEVER be concern about federal deficit spending or national debt because they are merely accounting entries reflecting "net saving desire/intention" in the non-government sector, and that in our fiat currency system the deficit/debt is merely the amount of money the federal government has created to match/represent real economic growth.
I’m disappointed that you would conclude this. Have we not made it clear that there are limits to deficit spending and these limits are real? Have we not attempted to explain that the limits of deficit spending are reached when the government has satisfied the savings desire of the non-government sector and has achieved a near elimination of the output gap? I expect this type of hyperbole from Ted but not from you.
You've made it perfectly clear that "the limits of deficit spending are reached when the government has satisfied the savings desire of the non-government sector." You just haven't explained what the "savings desire of the non-government sector" IS.

And when I asked what it is, you tell me:
QUOTE(brinn @ Jan 6 2011, 05:35 PM) *
I don’t know what you mean by this and will have to go back through the thread and see what the context of this question was.


This post has been edited by Maybe Maybe Not: Jan 7 2011, 01:22 AM
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brinn
post Jan 7 2011, 02:28 AM
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QUOTE(Maybe Maybe Not @ Jan 6 2011, 08:21 PM) *
QUOTE(brinn @ Jan 6 2011, 05:35 PM) *
QUOTE(MMN)
The "real" question is whether there is any reason for concern about our current level of deficit spending and debt. My apprehension of the position of MMT proponents here is that there should almost NEVER be concern about federal deficit spending or national debt because they are merely accounting entries reflecting "net saving desire/intention" in the non-government sector, and that in our fiat currency system the deficit/debt is merely the amount of money the federal government has created to match/represent real economic growth.
I’m disappointed that you would conclude this. Have we not made it clear that there are limits to deficit spending and these limits are real? Have we not attempted to explain that the limits of deficit spending are reached when the government has satisfied the savings desire of the non-government sector and has achieved a near elimination of the output gap? I expect this type of hyperbole from Ted but not from you.
You've made it perfectly clear that "the limits of deficit spending are reached when the government has satisfied the savings desire of the non-government sector." You just haven't explained what the "savings desire of the non-government sector" IS.

And when I asked what it is, you tell me:
QUOTE(brinn @ Jan 6 2011, 05:35 PM) *
I don’t know what you mean by this and will have to go back through the thread and see what the context of this question was.


blush.gif I guess that saves me some time, eh!?!?

Now would be a great time to go back to my December 18th post regarding the parable of a monetary economy (the one you refused to read because it was too long). It clearly walks you through an illustration of how savings desires effect budget deficits. It is long, but the length is a necessity and the writing is clear. It is an incredibly useful model.

Put simply, savings desire is the sum of all the income that is not used for consumption nor investment.

Allow me to quote the Heteconomist (i.e. our very own "alienated"): To the extent the non-government sector net saves, some income earned is not spent, and the result is unsold output. The government can purchase this unsold output without bidding up prices because it is output that is not demanded by the non-government sector. In this way, it is possible for government deficit expenditure to maintain demand at a level sufficient to absorb full-employment output at stable prices while facilitating the net saving desires of the non-government sector. Deficit expenditure at this level does not create an inflationary impulse because the deficit corresponds to the portion of created fiat money that the non-government sector demands as a form of saving rather than as a source of spending power.

If and when the non-government sector reduces its net saving desires and increases its spending, this will leave less room for government deficit expenditure and, if the economy is at full employment, require either an increase in taxes or a decrease in government expenditure to avoid inflation. For example, if foreigners start buying more goods and services produced in the domestic economy (an increase in export demand), the government will not need to spend as much to maintain full employment.

In macroeconomics, equilibrium is often defined as a situation in which the actual outcome equals the desired or planned outcome. When the actual outcome equals the desired, there is no impetus for economic agents to alter their behavior. In contrast, if the actual outcome differs from the intended one, economic agents will have reason to do things differently.

For example, it is well known that in simple two-sector macroeconomic models (with no government or external sectors), actual investment equals actual saving by definition, but that planned investment does not necessarily equal planned saving. The reason actual investment has to equal actual saving is that actual investment is defined to include planned investment plus unplanned investment, where the latter is unanticipated changes in firms’ inventories. In these models, if firms sell less output than they expect due to weaker than expected demand (and higher than expected actual saving), inventories of unsold output accumulate and this is counted as unintended investment. But, of course, firms don’t actually intend for this degree of inventory build-up and so will tend to adjust behavior to eliminate the excess inventories, for instance by cutting back production. There will be an impetus to alter behavior until investment plans are realized.

Relating back to the current topic, by definition the actual budget deficit equals actual non-government net saving. As is explained in Budget Deficits and Net Private Saving, this is an accounting identity, true by definition:

Government Deficit = Non-Government Surplus

However, this does not necessarily mean that the budget deficit equals intended non-government net saving. If actual non-government net saving is less than intended, this will induce the non-government sector to redouble its efforts to net save. It will do this by cutting back expenditure and saving a higher proportion of income. The result will be a bigger output gap – more unsold output – unless the government steps in and purchases the remaining available goods and services.

If the government does not deficit spend sufficiently to sustain the non-government sector’s intended level of net saving, output and income will tend to fall. The lower income will frustrate non-government net saving efforts (preventing the desired increase in its net saving) and reduce tax revenues. The budget deficit will still equal non-government net saving, but not at a level of GDP that enables both intended net saving levels and full employment. That is, the budget deficit will equal actual, but not planned, non-government net saving.

We can easily tell whenever the budget deficit falls short of the non-government’s desired level of net saving. The tell-tale sign is unemployment and excess capacity. The non-government net saving desire corresponds to the output gap.


Does that help clarify?


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Ted
post Jan 7 2011, 02:52 AM
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QUOTE
Put simply, savings desire is the sum of all the income that is not used for consumption nor investment.


The same nonsense.

The idea is just keep deficit spending and then when, just before inflation wrecks the economy, you guys think we can raise Taxes and make it all better.

Ridiculous idea. And by the way if you are not printing money – which now you are telling me you will not, you end up with the worlds largest deficit and the interest payment go along with it.

Insanity at work brinn…..

And please don’t tell me this is not what the nonsense above means because at least 3 people on this thread have been asking all you MMT cult members for the policy that would fall out of the “grand formula” you have above - a have received exactly nothing.............

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CarpeDinkum
post Jan 7 2011, 03:18 AM
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QUOTE(Ted @ Jan 6 2011, 02:14 PM) *
QUOTE
"Temporary unemployment" would infer that there was a prospect of finding work... This is not the 1960's when recruiters came to the High Schools looking for hourly employees!


I assume you are referring to my statement. The comparison I am making here is to the current high unemployment to inflation. Would you trade lack of inflation (for high inflation) and a faster path back to the low unemployment we have seen sine the 80s?

Why. Inflation destroys the value of all assets.


You seem to assume rather polarzied situations. Extremes. Is that what you mean to get across, either that we have high unemployment, or hyper-inflation, period?

QUOTE(Ted)
Our employment issues have a lot more to do with our dismal education system and tax structure than the businessman going to china for low labor costs.


Well, we have to have SOME taxes if for no other reason than to anchor the dollar as the coin of the realm. Otherwise Wallmart COULD pay partly employees in WalmartBucks and there would be little to stop them. I do think taxes also serve to pull money out of the economy should it start getting too hot. Not a very good instrument for that purpose, as we have it set up now. It costs the private sector, what, 20% of tax revenues additionally just for compliance? Sure it gives people something to do, but if you want to talk about useless busy-work...

I'm with you on the dismal education system; dismal parents being part of that equation.

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Ted
post Jan 7 2011, 03:33 AM
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QUOTE
You seem to assume rather polarzied situations. Extremes. Is that what you mean to get across, either that we have high unemployment, or hyper-inflation, period?


No CarpDinkum I don’t. I get the MMT idea. It’s Keynesian policy on steroids. Not enough demand in the private sector – all we need to do is have the government “buy” it. Hell if there is unemployment we can just have the government hire people directly. And as brinn has said, no need to worry about inflation getting out of hand we can just raise Taxes!! Ya sure. As you say it doesn't work well and is, by the way, politically impossible.

Inflation is a monster and to imaging we can tempt it and then have the political will to raise taxes to deal with it is wildly optimistic. The Fed would just have to jack up interest rates to cool the economy.

How about an old remedy that has worked well in the past. Lower taxes and let Americans “buy” the unused capacity of industry…… whistling.gif

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