Not Even Harry Browne Thought It Was Going To Be This Bad

[Gumby]

A bond is a future tax because the government has no other way to repay the bond other than to tax.

What are you talking about? The government pays bond interest every day regardless of whether there's a tax shortfall or not. They just issue more bonds to pay the interest. The bonds never need to be all paid off at the same time, so they can just keep issuing new ones indefinitely.

[Pointedstick]

Mdraf, you are confusing wealth with money. The government may not be able to create wealth, but it can create money. And bonds are repaid with money, not wealth.

[MediumTex]

A bond is a future tax because the government has no other way to repay the bond other than to tax.

That's not correct.  When a bond matures, the government can simply roll it over by issuing another bond to be paid off in the future.  This is the way it happens most of the time.

Another way that the government can "repay" the bond is through inflation.  If the government borrows $1,000 at 4% interest and when it pays it off inflation is running at 8%, then the government actually has to collect far less in taxes than it has borrowed in real terms to pay off the bond in the event that it didn't want to roll over the debt (even though in the last 30 years the government has done nothing but issue more debt as existing debt has matured).

[frommi]

A bond is a future tax because the government has no other way to repay the bond other than to tax.  The government does not possess resources of its own. The government can not add one iota of new wealth to the econ­o­my nor to pay for the bonds– it can only dispose of already existing wealth by taking it from the private sector. How is that so difficult to grasp?

As for Primary Dealers being no richer or poorer, I agree. But the so called asset they received for their bond was created and injected into the economy and WAS NOT backed by future taxes nor anything else.

The government can simply call the FED and ask to default all bonds hold by the FED. I remember the idea to print a gold coin worth 1 billion usd, to pay that debt off. As long as the FED is the main holder of the debt, there is only inflation risk which the FED would counter with higher interest rates.

[MediumTex]

Mdraf,

You don't like the current system and I don't either.

The fact is, though, that this system has a certain set of internal mechanics and it has been the system that was in place when the U.S. saw its greatest economic growth in its entire history, so it may not be as bad as it at first appears.

Also, note that it was only when the government's debt and deficit situation appeared to get WAY out of whack in the early 1980s that economic growth really took off.

In the late 1990s, however, when the government appeared to be improving its finances by reducing the government deficit each year, the economy began to sputter badly shortly thereafter.

[Gumby]

The government can simply call the FED and ask to default all bonds hold by the FED.

Not sure the Treasury even needs to do that since all of the Fed's income (less Fed profits) is just returned to the Treasury anyway. But, whatever.

[Libertarian666]

Mdraf,

You don't like the current system and I don't either.

The fact is, though, that this system has a certain set of internal mechanics and it has been the system that was in place when the U.S. saw its greatest economic growth in its entire history, so it may not be as bad as it at first appears.

Also, note that it was only when the government's debt and deficit situation appeared to get WAY out of whack in the early 1980s that economic growth really took off.

In the late 1990s, however, when the government appeared to be improving its finances by reducing the government deficit each year, the economy began to sputter badly shortly thereafter.

Did you know that GDP includes government spending? That might help to explain why increasing government spending increases GDP.

So let's subtract government spending from GDP and see what the actual growth rate has been during that "wonderful" time.

Oh, someone has done that already (although in 2010):

http://www.businessinsider.com/heres-wh ... ion-2010-9

[Gumby]

Did you know that GDP includes government spending? That might help to explain why increasing government spending increases GDP.

So let's subtract government spending from GDP and see what the actual growth rate has been during that "wonderful" time.

Oh, someone has done that already (although in 2010):

http://www.businessinsider.com/heres-wh ... ion-2010-9

It's not a secret that government spending drives economic growth and corporate profits:

http://pragcap.com/profit-margins-and-t ... ts-deficit

This is what I've been saying. The government's liabilities are the private sector's assets. If you stopped deficit-spending and the government taxed more than it spent, that would just create a surplus for the government and a deficit in the private sector. Hardly a solution to anything besides taming inflation and slowing growth (a useful tool in those situations). The deficit of one sector must be the surplus of another.

[Mdraf]

Did you know that GDP includes government spending? That might help to explain why increasing government spending increases GDP.

So let's subtract government spending from GDP and see what the actual growth rate has been during that "wonderful" time.

Oh, someone has done that already (although in 2010):

http://www.businessinsider.com/heres-wh ... ion-2010-9

It's not a secret that government spending drives economic growth and corporate profits:

http://pragcap.com/profit-margins-and-t ... ts-deficit

This is what I've been saying. The government's liabilities are the private sector's assets. If you stopped deficit-spending and the government taxed more than it spent, that would just create a surplus for the government and a deficit in the private sector. Hardly a solution to anything besides taming inflation and slowing growth (a useful tool in those situations). The deficit of one sector must be the surplus of another.

I can't believe I'm reading this! This is the most ridiculous thing I've read in this forum so far. In that case Greece and Portugal should really be economic powerhouses right now.

[MediumTex]

Did you know that GDP includes government spending? That might help to explain why increasing government spending increases GDP.

But why would you exclude government spending from GDP?  If the government collects $100 in taxes and then uses it to buy some bullets for Social Security investigators' sidearms, isn't that real income for the bullet maker just as if a private citizen had purchased them?

[MediumTex]

I can't believe I'm reading this! This is the most ridiculous thing I've read in this forum so far. In that case Greece and Portugal should really be economic powerhouses right now.

Greece and Portugal are not currency issuers and do not have especially productive economies for government spending to stimulate in the first place.

Not a good comparison, IMHO.

The U.K. might be a good comparison, though, and the outcome of government spending there has been similar to what it has been here--i.e., it has arrested a bit of the deflationary economic contraction that might otherwise have occurred following the 2008 financial crisis.

[Mdraf]

I can't believe I'm reading this! This is the most ridiculous thing I've read in this forum so far. In that case Greece and Portugal should really be economic powerhouses right now.

Greece and Portugal are not currency issuers and do not have especially productive economies for government spending to stimulate in the first place.

Not a good comparison, IMHO.

The U.K. might be a good comparison, though, and the outcome of government spending there has been similar to what it has been here--i.e., it has arrested a bit of the deflationary economic contraction that might otherwise have occurred following the 2008 financial crisis.

Then what do you say about governments running a surplus such as Norway, Korea, Finland, Australia, Switzerland. What a terrible shape they must be in with their economies being gutted by government surplus!

[MediumTex]

Then what do you say about governments running a surplus such as Norway, Korea, Finland, Australia, Switzerland. What a terrible shape they must be in with their economies being gutted by government surplus!

I would say that if your economy is strong and you are facing the potential for inflation, then higher taxes that led to a government surplus would probably be good policy.

[moda0306]

Let's remember, government consumption is part of GDP, but not transfer payments, so that article is using pretty bogus numbers.

[Gumby]

Then what do you say about governments running a surplus such as Norway, Korea, Finland, Australia, Switzerland. What a terrible shape they must be in with their economies being gutted by government surplus!

There are three sectors to consider:

Private
Public
Foreign

If the private and public sectors both have surpluses, the surpluses must come from the foreign sector, which would have to have a deficit.

[Mdraf]

Then what do you say about governments running a surplus such as Norway, Korea, Finland, Australia, Switzerland. What a terrible shape they must be in with their economies being gutted by government surplus!

There are three sectors to consider:

Private
Public
Foreign

If the private and public sectors both have surpluses, the surpluses must come from the foreign sector, which would have to have a deficit.

Wrong. You imply that all countries' private and public debt and surplus put together balance out to zero. But they don't. They're negative.

[Gumby]

Then what do you say about governments running a surplus such as Norway, Korea, Finland, Australia, Switzerland. What a terrible shape they must be in with their economies being gutted by government surplus!

There are three sectors to consider:

Private
Public
Foreign

If the private and public sectors both have surpluses, the surpluses must come from the foreign sector, which would have to have a deficit.

Wrong. You imply that all countries' private and public debt and surplus put together balance out to zero. But they don't. They're negative.

I never said that all of the countries combined net to zero. Now you're putting words in my mouth. We are just dividing a single currency into three distinct sectors and those sectors net to zero. I mean, where exactly do you think surpluses come from? They come from the deficits of another sector.

[Mdraf]

There are three sectors to consider:

Private
Public
Foreign

If the private and public sectors both have surpluses, the surpluses must come from the foreign sector, which would have to have a deficit.

Wrong. You imply that all countries' private and public debt and surplus put together balance out to zero. But they don't. They're negative.

I never said that. Now you're putting words in my mouth. We are just dividing a single currency into three distinct sectors.

Sorry I don't get it.

[Gumby]

No problem at all. This is complex stuff. It took me months to understand it. I'm on my phone at the moment so it's a little difficult for me to explain it all right now. Moda or PS or others should be able to help explain or I can try later this evening!

[Mdraf]

No problem at all. This is complex stuff. It took me months to understand it. I'm on my phone at the moment so it's a little difficult for me to explain it all right now. Moda or PS or others should be able to help explain or I can try later this evening!

Now you are being arrogant and condescending. I didn't mean I didn't understand the principle. I just didn't understand your nonsensical "dividing a single currency..." sentence which lacking further explanation makes no sense.

[Mdraf]

There are three sectors to consider:

Private
Public
Foreign

If the private and public sectors both have surpluses, the surpluses must come from the foreign sector, which would have to have a deficit.

Wrong. You imply that all countries' private and public debt and surplus put together balance out to zero. But they don't. They're negative.

The U.S. uses double entry accounting.  That is, when I pay Amazon for a book via my checking account, my bank account balance goes down, and Amazon's goes up.  If I buy a McDouble, my account balance goes down, and McDonalds's goes up.  More generally, looking at my own financial balances, if my account balances are going down, then the rest of the world's balances are going up.  And vice versa.

Put another way, TennPaGa surpluses are deficits for the rest of the world, and TennPaGa deficits are surpluses for the rest of the world.

You can look at the U.S. financial balances the same way.

By definition...
  government deficit = non-government surplus.

And
  non-government surplus = private domestic surplus + foreign surplus

But a "foreign surplus", viewed from the U.S. perspective, is the U.S. trade deficit.  Therefore:

  government deficit = private domestic surplus + trade deficit

Some implications of this:

* If we want to decrease the government deficit, the sum of private domestic surplus and trade deficit have to decrease as well.

* If we want private domestic surplus to be greater than zero, the government deficit must be at least equal to the trade deficit.

Several of you spout this Keynesian doctrine as if it were a religion and take as a given and settled things which are not. I now understand techno's frustration  and his reluctance to engage in further discussion.

[Pointedstick]

Several of you spout this Keynesian doctrine as if it were a religion and take as a given and settled things which are not. I now understand techno's frustration and his reluctance to engage in further discussion.

If this explanation for the structural origin of sectoral balances is unsatisfying, could you give us your version? It makes sense to me, but as always, I'm open to other perspectives and more than willing to be proven wrong.

[l82start]

one of the problems with MR is to any Austrian follower it sounds like Keynesian economics on steroids. i had the same initial reaction myself.. 
the other problem is that it ends up being an endless debate over mechanics (which i suspect MR has right) and the topic of implications gets blown past every time.

MR - the carburetor is converting the fuel to energy we can never have a shortage of fuel.

libertarian- but the exhaust is alcohol and it gets pumped directly into the drivers compartment.. its dangerous

MR- sure its possibly dangerous, but your missing the point the flapenblatser in the carburetor is connected to the.... bla bla bla

the two sides talk past each other, and it gets complicated when the Austrians/libertarians don't get mechanics and the MR people debate only mechanics and not the implications of fiat

[Mdraf]

one of the problems with MR is to any Austrian follower it sounds like Keynesian economics on steroids. i had the same initial reaction myself.. 
the other problem is that it ends up being an endless debate over mechanics (which i suspect MR has right) and the topic of implications gets blown past every time.

MR - the carburetor is converting the fuel to energy we can never have a shortage of fuel.

libertarian- but the exhaust is alcohol and it gets pumped directly into the drivers compartment.. its dangerous

MR- sure its possibly dangerous, but your missing the point the flapenblatser in the carburetor is connected to the.... bla bla bla

the two sides talk past each other, and it gets complicated when the Austrians/libertarians don't get mechanics and the MR people debate only mechanics and not the implications of fiat

I think this is an excellent way to wrap up this thread. Thanks.

[moda0306]

I don't disagree that mr can sound like Keynesianism on steroids. 

However, Austiqnw have a ton to answer for from a fundamental standpoint... Not just operational