doodle wrote:
So here's a scenario....I'm trying to figure out who has been robbed here. Since there is so much talk of theft with regards to money printing.
Let's say you are sick and in the hospital but you don't have any money for a nurse.So the government prints 40000 dollars and hires a nurse who before that was just sitting on her couch doing nothing because no one had money to pay for her services. Now you have someone to heal you and she has a job.
She then takes the money from the job and goes out and wants to buy a new car. So the factory has to hire another worker to make that car. Now another person has a job and the economy has a health care worker and a car.
The car worker needs some new clothes for work and so he takes his salary and buys a bunch of uniforms. The uniform company has to hire another worker to make those uniforms. Now the economy has a health care worker, a car, and uniforms and three people have employment.
It seems to me that if the economy is functioning below capacity, which it is in my example...then printing money only leads to more goods and services and no inflation. If there is no inflation, then no one has been robbed and instead we just have more things in the economy than we did before.
It is only when the economy is running at full capacity that printing extra money could truly lead to inflation. Even if the government were to bypass the first step of hiring someone and just give the money out, it would be used to purchase goods and services and lead to an increase in employment and production.
So where is the theft?
The theft is the stolen purchasing power from everyone else. The government stole it. It claimed the right to buy something without offereing anything in return. It did this because it has guns and dungeons to put people in if they refuse to trade stuff for paper.
In this case it bought my vote or sympathy or something by giving me money to buy stuff that I didn't earn but other people had to produce.
Yes, but the fact that all these people were sitting around doing nothing and the health care, car, and clothes didn't exist beforehand means that this wasn't stolen from anyone. This were just idle resources waiting to be put into action. There was a legitimate need for health care at the start of the example but no currency to purchase it. So, just print up a little currency and presto, now we have health care, cars, and clothes. Because you have untapped resources the government isn't competing with anyone when the purchase them.
They were untapped why? Because someone didn't need them? No. Ohhhhhhhhhhhh, it's because they couldn't pay for them. Now they can. Why now? Because the government stole the purchasing power of other people who could have paid for them but were choosing not to because they wanted to spend that purchasing power on something else.
Printing slips of paper and using them is not magic, it's theft. Doesn't matter who is doing the printing.
Kshartle wrote:
The theft is the stolen purchasing power from everyone else. The government stole it. It claimed the right to buy something without offereing anything in return. It did this because it has guns and dungeons to put people in if they refuse to trade stuff for paper.
In this case it bought my vote or sympathy or something by giving me money to buy stuff that I didn't earn but other people had to produce.
Yes, but the fact that all these people were sitting around doing nothing and the health care, car, and clothes didn't exist beforehand means that this wasn't stolen from anyone. This were just idle resources waiting to be put into action. There was a legitimate need for health care at the start of the example but no currency to purchase it. So, just print up a little currency and presto, now we have health care, cars, and clothes. Because you have untapped resources the government isn't competing with anyone when the purchase them.
They were untapped why? Because someone didn't need them? No. Ohhhhhhhhhhhh, it's because they couldn't pay for them. Now they can. Why now? Because the government stole the purchasing power of other people who could have paid for them but were choosing not to because they wanted to spend that purchasing power on something else.
Printing slips of paper and using them is not magic, it's theft. Doesn't matter who is doing the printing.
The government only got the ball rolling...after that everyone chose what they wanted. Idle resources were put back to work and the overall economy had more employment and goods and services. Because there were idle resources and factories could ramp up production easily there was no demand pull inflation.
All of humanity's problems stem from man's inability to sit quietly in a room alone. - Blaise Pascal
Kshartle wrote:
The theft is the stolen purchasing power from everyone else. The government stole it. It claimed the right to buy something without offereing anything in return. It did this because it has guns and dungeons to put people in if they refuse to trade stuff for paper.
In this case it bought my vote or sympathy or something by giving me money to buy stuff that I didn't earn but other people had to produce.
Yes, but the fact that all these people were sitting around doing nothing and the health care, car, and clothes didn't exist beforehand means that this wasn't stolen from anyone. This were just idle resources waiting to be put into action. There was a legitimate need for health care at the start of the example but no currency to purchase it. So, just print up a little currency and presto, now we have health care, cars, and clothes. Because you have untapped resources the government isn't competing with anyone when the purchase them.
They were untapped why? Because someone didn't need them? No. Ohhhhhhhhhhhh, it's because they couldn't pay for them. Now they can. Why now? Because the government stole the purchasing power of other people who could have paid for them but were choosing not to because they wanted to spend that purchasing power on something else.
Printing slips of paper and using them is not magic, it's theft. Doesn't matter who is doing the printing.
What if there were not enough slips of paper to pay for evrything the economy could produce? Deflation would happen. That would cause more businesses to go under and the only ones to benefit would be those who didn't do anything with their money but just sat on a mattress load of cash. Those who risked their money to do stuff, would all go under. Not because their good wasn't demanded, but because there wasn't enough paper to go around.
All of humanity's problems stem from man's inability to sit quietly in a room alone. - Blaise Pascal
doodle wrote:
Yes, but the fact that all these people were sitting around doing nothing and the health care, car, and clothes didn't exist beforehand means that this wasn't stolen from anyone. This were just idle resources waiting to be put into action. There was a legitimate need for health care at the start of the example but no currency to purchase it. So, just print up a little currency and presto, now we have health care, cars, and clothes. Because you have untapped resources the government isn't competing with anyone when the purchase them.
They were untapped why? Because someone didn't need them? No. Ohhhhhhhhhhhh, it's because they couldn't pay for them. Now they can. Why now? Because the government stole the purchasing power of other people who could have paid for them but were choosing not to because they wanted to spend that purchasing power on something else.
Printing slips of paper and using them is not magic, it's theft. Doesn't matter who is doing the printing.
The government only got the ball rolling...after that everyone chose what they wanted. Idle resources were put back to work and the overall economy had more employment and goods and services. Because there were idle resources and factories could ramp up production easily there was no demand pull inflation.
Let's make it easier. Let's say it's 1,000 trillion and now I have it (thanks Obamanke) and I can buy everything in the US with it...all property. Is the theft now obvious?
The principle is no different with 1,000 trillion than it is with $1. If you can't see that then you aren't analyzing what is actually occurring and we're just discussing the magnitude of effects.
It's like saying stealing a million dollars is theft but if it's just penny and no one notices then it's not theft.
We are here, yes?
To bring it back...
How does this fit into the discussion of the monetary system? Or the distinction between currency and debt? Again, I have a guess, but I think it would be advantageous if you were explicit.
Accounts receivable is debt on the balance sheet
Huh? The company considers it an asset.
On a company's balance sheet, accounts receivable are the money owed to that company by entities outside of the company. Account receivables are classified as current assets assuming that they are due within one calendar year or fiscal year.
The fact that you can't take it to the bank and receive cash just means it is not a highly liquid asset. If I were assessing whether or not to buy the company, I would try to determine whether or not the value of the accounts receivable entries were what the company said they were, and make sure it wasn't some phantom entry, or referenced to someone without the ability to pay.
(Note: I've never bought a company before, so I'm just saying what makes sense to me.)
You are exactly right. It is not liquid. It is an asset whose value depends on other factors. And its mere presence on the balance sheet as an asset does not mean much without looking at the underlying factors, just as you described. That is my objection to CullenRochism. To equate an obligation which is described as an asset is not enough without analyzing the other factors that affect its value. That's why you cannot equate it to cash.
doodle wrote:
What if there were not enough slips of paper to pay for evrything the economy could produce?
This is a false premise. There is always enough money, prices just have to come down.
So you don't think a deflationary spiral is economically damaging not to mention socially destabalizing and could perhaps lead to a long term downward shift in the demand supply equilibrium point?
All of humanity's problems stem from man's inability to sit quietly in a room alone. - Blaise Pascal
Mdraf wrote:
You are exactly right. It is not liquid. It is an asset whose value depends on other factors. And its mere presence on the balance sheet as an asset does not mean much without looking at the underlying factors, just as you described. That is my objection to CullenRochism. To equate an obligation which is described as an asset is not enough without analyzing the other factors that affect its value. That's why you cannot equate it to cash.
Doesn't every asset depend on the value of other factors? A stock's value depends on the value of the underlying company. A currency-issuer bond's value depends on the stability of the government. A currency user bond's value depends on the issuing entity having enough money to pay. A piece of real estate's value is dependent on the quality of the quality of construction, the advantages of the location, the likelihood of natural disasters, And so on and so forth. Even gold's value is dependent on its relative scarcity; if someone invented a machine that could distill gold from seawater, gold would become basically valueless overnight and platinum or something else would replace it.
Human behavior is economic behavior. The particulars may vary, but competition for limited resources remains a constant.
- CEO Nwabudike Morgan
You realize Kshartle that economics is a social science, right? These policy decisions that are being made are being done so in the context of social demands and pressures. Trying to get people to behave according to some theory is going to be tough when they are hungry and cold.
All of humanity's problems stem from man's inability to sit quietly in a room alone. - Blaise Pascal
doodle wrote:
What if there were not enough slips of paper to pay for evrything the economy could produce?
This is a false premise. There is always enough money, prices just have to come down.
So you don't think a deflationary spiral is economically damaging not to mention socially destabalizing and could perhaps lead to a long term downward shift in the demand supply equilibrium point?
Rapid deflation is definately destabalizing as the economy must adjust prices and production to match the new purchasing power distribution. Do you think less paper means less purchasing power? If so I would refer you to Gumby's excellent assesment of where it comes from.
Heck, when in the midst of rapid expansion only a dip in the rate of expansion can spark a recession.
BTW - are we in agreement now on the theft example? Do you see who the theif is and what they stole and how it affects the economy negatively?
doodle wrote:
You realize Kshartle that economics is a social science, right? These policy decisions that are being made are being done so in the context of social demands and pressures. Trying to get people to behave according to some theory is going to be tough when they are hungry and cold.
My theory would be if they are cold and hungry they are going to try and get warm and fed. Does that theory make sense?
What is your point? Do you honestly think they are printing money to help everyone?
Mdraf wrote:
You are exactly right. It is not liquid. It is an asset whose value depends on other factors. And its mere presence on the balance sheet as an asset does not mean much without looking at the underlying factors, just as you described. That is my objection to CullenRochism. To equate an obligation which is described as an asset is not enough without analyzing the other factors that affect its value. That's why you cannot equate it to cash.
Doesn't every asset depend on the value of other factors? A stock's value depends on the value of the underlying company. A currency-issuer bond's value depends on the stability of the government. A currency user bond's value depends on the issuing entity having enough money to pay. A piece of real estate's value is dependent on the quality of the quality of construction, the advantages of the location, the likelihood of natural disasters, And so on and so forth. Even gold's value is dependent on its relative scarcity; if someone invented a machine that could distill gold from seawater, gold would become basically valueless overnight and platinum or something else would replace it.
Yes. Except currency. Only with currency (cash) do both parties know what they are getting without recourse to some external means of valuation.
Kshartle wrote:
This is a false premise. There is always enough money, prices just have to come down.
So you don't think a deflationary spiral is economically damaging not to mention socially destabalizing and could perhaps lead to a long term downward shift in the demand supply equilibrium point?
Rapid deflation is definately destabalizing as the economy must adjust prices and production to match the new purchasing power distribution. Do you think less paper means less purchasing power? If so I would refer you to Gumby's excellent assesment of where it comes from.
Heck, when in the midst of rapid expansion only a dip in the rate of expansion can spark a recession.
BTW - are we in agreement now on the theft example? Do you see who the theif is and what they stole and how it affects the economy negatively?
Depends on velocity of money and demand for credit.
No, I see no theft. I see three people with a job and more goods and services.If the government prints 1000 dollars and builds a road that leads to productivity increases that spur more wealth for everyone, has a theft occurred?
Kshartle wrote:
doodle wrote:
You realize Kshartle that economics is a social science, right? These policy decisions that are being made are being done so in the context of social demands and pressures. Trying to get people to behave according to some theory is going to be tough when they are hungry and cold.
My theory would be if they are cold and hungry they are going to try and get warm and fed. Does that theory make sense?
What is your point? Do you honestly think they are printing money to help everyone?
They are trying to get warm and fed but have no money to buy a blanket and food and no job with which to earn money because all the producers went bankrupt in the great deflation.
All of humanity's problems stem from man's inability to sit quietly in a room alone. - Blaise Pascal
Kshartle wrote:
What are negative real interest rates. What does that mean?
When the rate of interest you can get on a government bond (I believe they use the 10-year note for the purpose of this definition) is less than the rate of inflation.
So the theory goes, when the government is not fairly compensating you for holding their paper by giving you a positive inflation-adjusted rate of return, people react by wanting to own more gold.
Human behavior is economic behavior. The particulars may vary, but competition for limited resources remains a constant.
- CEO Nwabudike Morgan
doodle wrote:
So you don't think a deflationary spiral is economically damaging not to mention socially destabalizing and could perhaps lead to a long term downward shift in the demand supply equilibrium point?
Rapid deflation is definately destabalizing as the economy must adjust prices and production to match the new purchasing power distribution. Do you think less paper means less purchasing power? If so I would refer you to Gumby's excellent assesment of where it comes from.
Heck, when in the midst of rapid expansion only a dip in the rate of expansion can spark a recession.
BTW - are we in agreement now on the theft example? Do you see who the theif is and what they stole and how it affects the economy negatively?
Depends on velocity of money and demand for credit.
No, I see no theft. I see three people with a job and more goods and services.If the government prints 1000 dollars and builds a road that leads to productivity increases that spur more wealth for everyone, has a theft occurred?
You can't see theft when it's a small amount. What about my example of 1,000 trillion? Is that theft more obvious?
The only difference between the two is magnitude. Evidently there is some amount of value you think one entity can take from another but not be enough to qualify as theft.
As to your bridge, even if were possible for the government to utilize resources more efficiently than another, this argument can be shown false as follows: "If I steal 100k from someone and use it to build a pizza shop that employs people it is not theft".
If you think that way perhaps you have a career ahead of you in Congress. If anyone thinks that sounds insulting, ask yourself why? These are after all, our representatives in our self-defense agency.
When Switzerland had negative rates one had to pay them to keep your money. It was a variable rate, not your standard "maintenance fee". We are getting close to that here as on average bank fees exceed interest earned
MediumTex wrote:
It could just be responding to the prospect of a resumption of negative real interest rate conditions.
What are negative real interest rates. What does that mean?
It means that the yield on the 10 year or 30 year bond is lower than what the market believes inflation will be over that period.
Interest rates are still clearly positive though I admit the ten year has dropped 15/100ths of a point. So that must mean inflation expectations are growing. Could this be due to the promise to continue printing or is it just a coincidence? If it's just an asset swap and not inflationary is everyone buying gold mistaken? Do they not realize that printing money is not inflationary and just trading one financial asset for another?
Pointedstick wrote:
Doesn't every asset depend on the value of other factors? A stock's value depends on the value of the underlying company. A currency-issuer bond's value depends on the stability of the government. A currency user bond's value depends on the issuing entity having enough money to pay. A piece of real estate's value is dependent on the quality of the quality of construction, the advantages of the location, the likelihood of natural disasters, And so on and so forth. Even gold's value is dependent on its relative scarcity; if someone invented a machine that could distill gold from seawater, gold would become basically valueless overnight and platinum or something else would replace it.
Yes. Except currency. Only with currency (cash) do both parties know what they are getting without recourse to some external means of valuation.
Sure. Cash has the highest degree of moneyness. And bank deposits are similarly high.
But U.S. treasuries (notes, bills, bonds) are all highly liquid, and are just below cash in terms of moneyness. In my mind, this liquidity is the outcome of that "external valuation".
Yes. But "not the same" is the key. US obligations are liquid not because we are "currency issuers" but because our economy is so big and our debt/gdp is still manageable. Take Argentina this week. They are also currency issuers and their government obligations are not worth the paper they are printed on.
What many of us object to is that debt/gdp ratio getting out of control. You guys don't believe it matters.
I disagree that bank deposits are as high as cash. They are subject to government oversight and the bank has the legal right to deny a transaction. Also think identity theft and how the burden of proof is on you. No such limitations questions with cash.
Mdraf wrote:
Yes. But "not the same" is the key. US obligations are liquid not because we are "currency issuers" but because our economy is so big and our debt/gdp is still manageable. Take Argentina this week. They are also currency issuers and their government obligations are not worth the paper they are printed on.
What many of us object to is that debt/gdp ratio getting out of control. You guys don't believe it matters.
Now we're getting somewhere!!
I agree with basically everything you said there, and I do believe that the debt-to-GDP ratio matters. I don't have any idea what level is "too high" but I will agree with you that the higher it goes, the more danger there is. And I think the danger level varies enormously depending on the economy's situation. An economy with a great deal of slack is probably much better able to absorb more government debt than one with an economy going at full bore.
Human behavior is economic behavior. The particulars may vary, but competition for limited resources remains a constant.
- CEO Nwabudike Morgan
Mdraf wrote:What many of us object to is that debt/gdp ratio getting out of control. You guys don't believe it matters.
I agree with basically everything you said there, and I do believe that the debt-to-GDP ratio matters. I don't have any idea what level is "too high" but I will agree with you that the higher it goes, the more danger there is. And I think the danger level varies enormously depending on the economy's situation. An economy with a great deal of slack is probably much better able to absorb more government debt than one with an economy going at full bore.
To be clear, there is no danger of solvency, but there may be a danger of inflation depending on what's going on in the private sector.
Economists like to talk about thresholds that, if crossed, spell trouble. Usually there is an element of truth in what they say. But the public often overreacts to such talk.
Consider, for example, the debt-to-GDP ratio, much in the news nowadays in Europe and the United States. It is sometimes said, almost in the same breath, that Greece’s debt equals 153% of its annual GDP, and that Greece is insolvent. Couple these statements with recent television footage of Greeks rioting in the street. Now, what does that look like?
Here in the US, it might seem like an image of our future, as public debt comes perilously close to 100% of annual GDP and continues to rise. But maybe this image is just a bit too vivid in our imaginations. Could it be that people think that a country becomes insolvent when its debt exceeds 100% of GDP?
That would clearly be nonsense. After all, debt (which is measured in currency units) and GDP (which is measured in currency units per unit of time) yields a ratio in units of pure time. There is nothing special about using a year as that unit. A year is the time that it takes for the earth to orbit the sun, which, except for seasonal industries like agriculture, has no particular economic significance.
We should remember this from high school science: always pay attention to units of measurement. Get the units wrong and you are totally befuddled.
If economists did not habitually annualize quarterly GDP data and multiply quarterly GDP by four, Greece’s debt-to-GDP ratio would be four times higher than it is now. And if they habitually decadalized GDP, multiplying the quarterly GDP numbers by 40 instead of four, Greece’s debt burden would be 15%. From the standpoint of Greece’s ability to pay, such units would be more relevant, since it doesn’t have to pay off its debts fully in one year (unless the crisis makes it impossible to refinance current debt).
Some of Greece’s national debt is owed to Greeks, by the way. As such, the debt burden woefully understates the obligations that Greeks have to each other (largely in the form of family obligations). At any time in history, the debt-to-annual-GDP ratio (including informal debts) would vastly exceed 100%.
Most people never think about this when they react to the headline debt-to-GDP figure. Can they really be so stupid as to get mixed up by these ratios? Speaking from personal experience, I have to say that they can, because even I, a professional economist, have occasionally had to stop myself from making exactly the same error.
Economists who adhere to rational-expectations models of the world will never admit it, but a lot of what happens in markets is driven by pure stupidity – or, rather, inattention, misinformation about fundamentals, and an exaggerated focus on currently circulating stories.
What is really happening in Greece is the operation of a social-feedback mechanism. Something started to cause investors to fear that Greek debt had a slightly higher risk of eventual default. Lower demand for Greek debt caused its price to fall, meaning that its yield in terms of market interest rates rose. The higher rates made it more costly for Greece to refinance its debt, creating a fiscal crisis that has forced the government to impose severe austerity measures, leading to public unrest and an economic collapse that has fueled even greater investor skepticism about Greece’s ability to service its debt.
This feedback has nothing to do with the debt-to-annual-GDP ratio crossing some threshold, unless the people who contribute to the feedback believe in the ratio. To be sure, the ratio is a factor that would help us to assess risks of negative feedback, since the government must refinance short-term debt sooner, and, if the crisis pushes up interest rates, the authorities will face intense pressures for fiscal austerity sooner or later. But the ratio is not the cause of the feedback.
A paper written last year by Carmen Reinhart and Kenneth Rogoff, called “Growth in a Time of Debt,”? has been widely quoted for its analysis of 44 countries over 200 years, which found that when government debt exceeds 90% of GDP, countries suffer slower growth, losing about one percentage point on the annual rate.
One might be misled into thinking that, because 90% sounds awfully close to 100%, awful things start happening to countries that get into such a mess. But if one reads their paper carefully, it is clear that Reinhart and Rogoff picked the 90% figure almost arbitrarily. They chose, without explanation, to divide debt-to-GDP ratios into the following categories: under 30%, 30-60%, 60-90%, and over 90%. And it turns out that growth rates decline in all of these categories as the debt-to-GDP ratio increases, only somewhat more in the last category.
There is also the issue of reverse causality. Debt-to-GDP ratios tend to increase for countries that are in economic trouble. If this is part of the reason that higher debt-to-GDP ratios correspond to lower economic growth, there is less reason to think that countries should avoid a higher ratio, as Keynesian theory implies that fiscal austerity would undermine, rather than boost, economic performance.
The fundamental problem that much of the world faces today is that investors are overreacting to debt-to-GDP ratios, fearful of some magic threshold, and demanding fiscal-austerity programs too soon. They are asking governments to cut expenditure while their economies are still vulnerable. Households are running scared, so they cut expenditures as well, and businesses are being dissuaded from borrowing to finance capital expenditures.
The lesson is simple: We should worry less about debt ratios and thresholds, and more about our inability to see these indicators for the artificial – and often irrelevant – constructs that they are.
Robert J. Shiller is Professor of Economics at Yale University.
Reinhart and Rogoff made the classic correlation does not equal causation error.
I don't see much value and obsessing about raw Debt/GDP ratios. What really matters is what is going on in the private sector in relation to government spending.
Last edited by Gumby on Wed Sep 18, 2013 3:56 pm, edited 1 time in total.
Nothing I say should be construed as advice or expertise. I am only sharing opinions which may or may not be applicable in any given case.
TennPaGa wrote:
And, again, you've not explained how the assessment of QE as an asset swap that has no effect on inflation is flawed.
Geez I spent all day explaining how all assets are not the same thing. An "asset swap" as you describe it is a misnomer. It is not a "swap". One is cash the other is debt. They can't be just "swapped". I am not addressing inflation (in this thread). You bring up a new subject. Kshartle is dealing with that.
