Re: Federal debt ceiling
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Re: Federal debt ceiling
The Fed is always there to buy?
Re: Federal debt ceiling
And the Fed *creates* the cash to pay for them? That strikes me as an entirely fictional market, and I'm not sure why it should inspire confidence on the part of any ordinary investor who is required to assume that the Fed will be there to buy their bonds when it's time to sell.TennPaGa wrote:So, I would say, yes, the Fed is always there to buy.
Honestly, Amway makes more sense to me.
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Re: Federal debt ceiling
No, the Fed will buy every bond issued if no one else wants it.Maddy wrote:And the Fed *creates* the cash to pay for them? That strikes me as an entirely fictional market, and I'm not sure why it should inspire confidence on the part of any ordinary investor who is required to assume that the Fed will be there to buy their bonds when it's time to sell.TennPaGa wrote:So, I would say, yes, the Fed is always there to buy.
Honestly, Amway makes more sense to me.
The fact that they do it with freshly printed "money" means that they can keep it up until no one wants that "money".
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Re: Federal debt ceiling
https://dailyreckoning.com/golden-solut ... bt-crisis/
Right on time, Jim.
Right on time, Jim.
I thought this was neat.When the Treasury took control of all the nation’s gold during the Depression under the Gold Reserve Act of 1934, it also took control of the Federal Reserve’s gold.
But we have a Fifth Amendment in this country which says the government can’t seize private property without just compensation. And despite its name, the Federal Reserve is not technically a government institution.
So the Treasury gave the Federal Reserve a gold certificate as compensation under the Fifth Amendment (to this day, that gold certificate is still on the Fed’s balance sheet).
Now come forward to 1953.
The Eisenhower administration actually had the same debt ceiling problem we have today. And Congress didn’t raise the debt ceiling in time. Eisenhower and his Treasury secretary realized they couldn’t pay the bills.
What happened?
They turned to the weird gold trick to get the money. It turned out that the gold certificate the Treasury gave the Fed in 1934 did not account for all the gold the Treasury had. It did not account for all the gold in the Treasury’s possession.
The Treasury calculated the difference, sent the Fed a new certificate for the difference and said, “Fed, give me the money.” It did. So the government got the money it needed from the Treasury gold until Congress increased the debt ceiling.
That ability exists today. In fact, it is exists in much a much larger form, and here’s why…
Right now, the Fed’s gold certificate values gold at $42.22 an ounce. That’s not anywhere near the market price of gold, which is about $1,330 an ounce.
Now, the Treasury could issue the Fed a new gold certificate valuing the 8,000 tons of Treasury gold at $1,330 an ounce. They could take today’s market price of $1,330, subtract the official $42.22 price, and multiply the difference by 8,000 tons.
I’ve done the math, and that number comes fairly close to $400 billion.
In other words, tomorrow morning the Treasury could issue the Fed a gold certificate for the 8,000 tons in Fort Knox at $1,330 an ounce and tell the Fed, “Give us the difference over $42 an ounce.”
The Treasury would have close to $400 billion out of thin air with no debt. It would not add to the debt because the Treasury already has the gold. It’s just taking an asset and marking it to market.
If the debt ceiling isn’t raised, this gold certificate trick could finance the government for almost an entire year, because we have about a $400 billion deficit.
It’s not a fantasy. It was done twice. It was done in 1934 and it was done again in 1953 by the Eisenhower administration. It could be done again. It doesn’t require legislation.
Re: Federal debt ceiling
In a not-too-dissimilar scheme, the Mint could create a new coin, put the words "one trillion dollars" on it, and give it to the Fed in exchange for a trillion dollar check.
I think that's a pretty good illustration of how "not really real" money is.
I think that's a pretty good illustration of how "not really real" money is.
Re: Federal debt ceiling
There's no doubt that there are many ways for the government to print its way out of its debt, but that can't change the fact that there is a finite limit to the hard assets upon which all this money represents a claim. The game works so long as everybody closes their eyes and pretends that there's enough to go around, but that's the rub--there's not. God forbid the moment when the crowd wakes up and realizes that the emperor has no clothes. I have no idea how such an event would play out, but I'm pretty sure it will happen over night, and I have a good idea of who will come out unscathed and who will get flushed. Perhaps the only sane investment these days is in Steinway grands, liquor, ammunition, and tampons.
Re: Federal debt ceiling
Money doesn't represent a claim on hard assets. At least, dollars don't. They used to be backed by gold, at least in theory, but now they're not.
Dollars are valuable because a) people believe them to be valuable, and b) because taxes must be paid in dollars.
Dollars are valuable because a) people believe them to be valuable, and b) because taxes must be paid in dollars.
Re: Federal debt ceiling
Maybe not literally, but ultimately money represents--at least to the man on the street--a claim to something tangible that he wants or needs--which I guess would include both goods and services. Money is valuable because people believe it can be converted immediately to one of those two things.Xan wrote:Money doesn't represent a claim on hard assets. At least, dollars don't. They used to be backed by gold, at least in theory, but now they're not.
Dollars are valuable because a) people believe them to be valuable, and b) because taxes must be paid in dollars.
Am I wrong here?
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Re: Federal debt ceiling
It's an excellent illustration of how "not really real" fiat paper "money" is.Xan wrote:In a not-too-dissimilar scheme, the Mint could create a new coin, put the words "one trillion dollars" on it, and give it to the Fed in exchange for a trillion dollar check.
I think that's a pretty good illustration of how "not really real" money is.
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Re: Federal debt ceiling
Yes, of course.TennPaGa wrote:Yes, there is a finite limit to the real goods and services that money can be exchanged for. But this is true regardless of how much money exists in the economy, right?Maddy wrote:There's no doubt that there are many ways for the government to print its way out of its debt, but that can't change the fact that there is a finite limit to the hard assets upon which all this money represents a claim.
Printing more "money" doesn't increase goods or services. It just increases the number of claims on the same goods or services.
Thus, each claim loses value over time.
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Re: Federal debt ceiling
People take cash out of circulation by saving it, maybe then banks can put some of it back in circulation though loans.
But if people stop borrowing, because they have too much debt, or dont need to borrow...
So, could an economy run on gold coins? If they're being taken out of circulation by savers, and mining new gold is minimal
But if people stop borrowing, because they have too much debt, or dont need to borrow...
So, could an economy run on gold coins? If they're being taken out of circulation by savers, and mining new gold is minimal
Re: Federal debt ceiling
I'd like to think that we could see it coming, but considering how things are interconnected, especially through derivatives, it's hard to say what might set things off. The spark could come from the most unlikely place. Who'd have predicted what Lehman set in motion?WiseOne wrote:There must be a limit to this process, but I don't think we're anywhere close to it yet.
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Re: Federal debt ceiling
Correct. When the unraveling starts, it will be far too late to take evasive action if you haven't prepared in advance.Maddy wrote:I'd like to think that we could see it coming, but considering how things are interconnected, especially through derivatives, it's hard to say what might set things off. The spark could come from the most unlikely place. Who'd have predicted what Lehman set in motion?WiseOne wrote:There must be a limit to this process, but I don't think we're anywhere close to it yet.
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Re: Federal debt ceiling
When banks lend they just print up the money for it, what happens when the loan defaults.
ie they make a mortgage loan for 200k and count that as an asset, the bank's net worth increases by 200k
if the loan defaults, does the bank lose anything? Do they have to put 10% down on these loans
ie they make a mortgage loan for 200k and count that as an asset, the bank's net worth increases by 200k
if the loan defaults, does the bank lose anything? Do they have to put 10% down on these loans
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Re: Federal debt ceiling
Most mortgage loans are sold to one of the government-sponsored agencies like FNMA, and in that case I doubt that the bank suffers a loss (although they should).boglerdude wrote:When banks lend they just print up the money for it, what happens when the loan defaults.
ie they make a mortgage loan for 200k and count that as an asset, the bank's net worth increases by 200k
if the loan defaults, does the bank lose anything? Do they have to put 10% down on these loans
If they keep the loan, then they have to take the loss.
One other point: the bank's net worth doesn't increase by 200k when they make a 200k loan. Yes, the 200K asset goes on their books, but they have to pay out 200k to the seller.
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Re: Federal debt ceiling
But of course if the bank is "too big to fail", the taxpayer will end up with the bill.TennPaGa wrote:They also have a liability - the 200k they deposited in the borrowers account.boglerdude wrote:When banks lend they just print up the money for it, what happens when the loan defaults.
ie they make a mortgage loan for 200k and count that as an asset, the bank's net worth increases by 200kOf course. The value of the asset is greatly reduced, and they still have the liability. The bank doesn't get a free lunch.if the loan defaults, does the bank lose anything?
Re: Federal debt ceiling
Does the growth in total debt really matter in the modern economy?
See in today's Wall Street Journal an article by Melvyn King, "Warning Signs About the Global Economy: The former governor of the Bank of England says total debt is troublesome."
As former governor of the Bank of England from 2003-2013, King had a ringside seat watching the financial crisis of 2008-2009, its runup and its aftermath.
See in today's Wall Street Journal an article by Melvyn King, "Warning Signs About the Global Economy: The former governor of the Bank of England says total debt is troublesome."
As former governor of the Bank of England from 2003-2013, King had a ringside seat watching the financial crisis of 2008-2009, its runup and its aftermath.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Federal debt ceiling
No, with "modern" monetary technology we can spend ourselves rich!jhogue wrote:Does the growth in total debt really matter in the modern economy?
See in today's Wall Street Journal an article by Melvyn King, "Warning Signs About the Global Economy: The former governor of the Bank of England says total debt is troublesome."
As former governor of the Bank of England from 2003-2013, King had a ringside seat watching the financial crisis of 2008-2009, its runup and its aftermath.
Math is hard...
Re: Federal debt ceiling
So the answer to the question "Does the debt matter?" is. . . [drumroll]. . .
To the government itself: No
To the multinational corporate monopolies that run this country and to their whores in Congress: No
To you and me: Hell yes
To the government itself: No
To the multinational corporate monopolies that run this country and to their whores in Congress: No
To you and me: Hell yes
Re: Federal debt ceiling
How, exactly? Suppose the Mint did create twenty 1-trillion-dollar coins and gave them to the Treasury. The national debt would suddenly be zero. Nothing in real life would change.Maddy wrote:To you and me: Hell yes
If things are the same, regardless of whether the national debt is twenty trillion dollars or zero, then it seems like it in fact doesn't matter.
Re: Federal debt ceiling
Well, it's the next step that matters. The Treasury takes its 1 trillion new dollars and spends them on goods and services that I'd also like to buy, or that the people from whom I buy things also would like to buy. The cost of everything goes up.Xan wrote:How, exactly? Suppose the Mint did create twenty 1-trillion-dollar coins and gave them to the Treasury. The national debt would suddenly be zero. Nothing in real life would change.Maddy wrote:To you and me: Hell yes
If things are the same, regardless of whether the national debt is twenty trillion dollars or zero, then it seems like it in fact doesn't matter.
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Re: Federal debt ceiling
How does that differ from the current situation, where they spend whatever they want and add it to the debt?Maddy wrote:Well, it's the next step that matters. The Treasury takes its 1 trillion new dollars and spends them on goods and services that I'd also like to buy, or that the people from whom I buy things also would like to buy. The cost of everything goes up.Xan wrote:How, exactly? Suppose the Mint did create twenty 1-trillion-dollar coins and gave them to the Treasury. The national debt would suddenly be zero. Nothing in real life would change.Maddy wrote:To you and me: Hell yes
If things are the same, regardless of whether the national debt is twenty trillion dollars or zero, then it seems like it in fact doesn't matter.
Re: Federal debt ceiling
I can't see any difference at all.Libertarian666 wrote:How does that differ from the current situation, where they spend whatever they want and add it to the debt?Maddy wrote:Well, it's the next step that matters. The Treasury takes its 1 trillion new dollars and spends them on goods and services that I'd also like to buy, or that the people from whom I buy things also would like to buy. The cost of everything goes up.Xan wrote:
How, exactly? Suppose the Mint did create twenty 1-trillion-dollar coins and gave them to the Treasury. The national debt would suddenly be zero. Nothing in real life would change.
If things are the same, regardless of whether the national debt is twenty trillion dollars or zero, then it seems like it in fact doesn't matter.
Re: Federal debt ceiling
It sounds like everyone just agreed that the national debt doesn't matter, then.
Re: Federal debt ceiling
You guys have lost me.Xan wrote:It sounds like everyone just agreed that the national debt doesn't matter, then.
I'd just as soon the red bell pepper that they wanted $4.25 for yesterday (I put it back) didn't go up to $6.25 next year.