Gyroscopic Investing

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

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

Mdraf wrote: 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.

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

MediumTex wrote: 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.

Libertarian666 wrote: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 wrote:

Libertarian666 wrote: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.

Libertarian666 wrote: Did you know that GDP includes government spending? That might help to explain why increasing government spending increases GDP.

Mdraf wrote: 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 wrote:

Mdraf wrote: 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 wrote: 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!

Mdraf wrote: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!

Gumby wrote:

Mdraf wrote: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 wrote:

Gumby wrote:

Mdraf wrote: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 wrote:

Mdraf wrote:

Gumby wrote: 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.

Gumby wrote: 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!

TennPaGa wrote:

Mdraf wrote:

Gumby wrote: 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.

Mdraf wrote: 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.

l82start wrote: 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