Gyroscopic Investing

Final numbers from the government is negative 2.9%, and that's with a GDP deflator below the actual inflation rate so the tumble was greater than that.

Ohhh well, it was probably all the snow

The guys on CNBC are joking about how there's nothing to worry about because the Fed can just ramp the presses back up.

- GDP is dropping while inflation is picking up? How is that possible 

What's the cure boys and girls, more printing and more deficit spending from the government? Does Obama need more control of the economy? He seems to know what should be produced and what shouldn't, how workers should be paid and what benefits they should get.

Source? Link?

Darn, that's bad. 

Kshartle wrote: Final numbers from the government is negative 2.9%, and that's with a GDP deflator below the actual inflation rate so the tumble was greater than that.

Ohhh well, it was probably all the snow

The guys on CNBC are joking about how there's nothing to worry about because the Fed can just ramp the presses back up.

- GDP is dropping while inflation is picking up? How is that possible 

What's the cure boys and girls, more printing and more deficit spending from the government? Does Obama need more control of the economy? He seems to know what should be produced and what shouldn't, how workers should be paid and what benefits they should get.

I'm interested to see if this is just a blip... why the hell isn't the stock market freaking out!? 

Obama doesn't need more control of the economy.  Simple, broad-based deficit-spending is what is needed.  Either via increased spending, or a payroll tax holiday.

No complex tax credits.
No accelerated depreciation.
No 6 weeks of paid leave for new mothers.
No need to "print more" as it's only one tool to control rates and lending... and QE is more of a token indicator of future intentions of short-rates more than an actual lever to bring down long rates in-and-of-itself (IMO).
Not race or sex-based (though I wouldn't mind a "moda-based" stimulus to reward me for thinking of the plan )).
No phase-outs as you earn more money.

Simple. Broad-based. Abundant. Stimulus... until unemployment falls or inflation rises reaching 4% (or something like this).

Keep in mind, I'm advocating a gosh-darn PAYROLL TAX HOLIDAY!  Screw it... employer-side too!  That means both rich people AND business-owners benefit abundantly compared to low-wage earners (relative to each other, not relative to their incomes, obviously).  This is about as libertarian-friendly stimulus as a bat-$hit crazy, statist, commie, race-baiting, welfare-king, America-hating, freedom-crippling liberal like me can come up with ... Why we can't get practical universal agreement on this from congress, to me, is mind-boggling.

Instead republicans are trying to abolish health reform, and Obama is proposing more baby-mamma-money from the government.

This doesn't solve all of our economic problems.  But it will stop the bleeding that is the Mexican Standoff we put ourselves in in monetized, debt-based economies without proper counter-cyclical action taken by government.  Recessions are bad... and usually WORSEN other problems... they don't magically make people better via desperation and poverty, and skill going to waste.

What do you think the government should buy with the money it prints? Or should it just borrow more, thereby putting upward pressure on rates?

moda0306 wrote: Keep in mind, I'm advocating a gosh-darn PAYROLL TAX HOLIDAY!  Screw it... employer-side too!  That means both rich people AND business-owners benefit abundantly compared to low-wage earners (relative to each other, not relative to their incomes, obviously).  This is about as libertarian-friendly stimulus as a bat-$hit crazy, statist, commie, race-baiting, welfare-king, America-hating, freedom-crippling liberal like me can come up with ... Why we can't get practical universal agreement on this from congress, to me, is mind-boggling.

Instead republicans are trying to abolish health reform, and Obama is proposing more baby-mamma-money from the government.

Checks and balances, baby!

On a more serious not, my mind boggles too. The REPUBLICANS of all people let the prior payroll tax cut expire despite all their rhetoric about lowering taxes.

Kshartle wrote: What do you think the government should buy with the money it prints? Or should it just borrow more, thereby putting upward pressure on rates?

I didn't say it should "print money."  (unless you see deficit spending as "printing money," in which case I'm advocating for payroll tax holidays!)

And IF rates go up, the fed can either take actions to keep them low, or allow them to raise if they're not going to inhibit the economy.

moda0306 wrote:

Kshartle wrote: What do you think the government should buy with the money it prints? Or should it just borrow more, thereby putting upward pressure on rates?

I didn't say it should "print money."  (unless you see deficit spending as "printing money," in which case I'm advocating for payroll tax holidays!)

And IF rates go up, the fed can either take actions to keep them low, or allow them to raise if they're not going to inhibit the economy.

If they spend money they don't bring in from taxes it has to be borrowed or created.

You want more deficit spending. Does that just mean lower taxes and not increased government spending? Wouldn't lower taxes and the same level of spending mean printing or borrowing?

If it's more borrowing I hope you can see how that places upward pressure on rates as the supply of bonds goes up the price moves down unless offset by other factors. The steps the fed would take are inflationary so it's back to printing.

Kshartle wrote:

moda0306 wrote:

Kshartle wrote: What do you think the government should buy with the money it prints? Or should it just borrow more, thereby putting upward pressure on rates?

I didn't say it should "print money."  (unless you see deficit spending as "printing money," in which case I'm advocating for payroll tax holidays!)

And IF rates go up, the fed can either take actions to keep them low, or allow them to raise if they're not going to inhibit the economy.

If they spend money they don't bring in from taxes it has to be borrowed or created.

You want more deficit spending. Does that just mean lower taxes and not increased government spending? Wouldn't lower taxes and the same level of spending mean printing or borrowing?

If it's more borrowing I hope you can see how that places upward pressure on rates as the supply of bonds goes up the price moves down unless offset by other factors. The steps the fed would take are inflationary so it's back to printing.

Sorry K... Let's back u a bit.

I am not even really arguing for increased spending (though I think it could be a great idea).  In the spirit of "bi-partisanship," I'm calling for lowering payroll taxes.

But this will mean "more borrowing," and it won't necessarily put upward pressure on rates, because rates are near zero.  Or, probably better put, it could only put very, very light upward pressure on rates.

But considering how much supply of loanable funds we have, and how much demand for saving compared to investment we have right now, I don't see it as being much of a problem.  Hence why inflation isn't very high right now in the presence of very low interest rates (do the same thing in 1996 and we'd have huge inflation).  The macro-economics of it all simply don't warrant inflation.  People have no means to really generate it.  Our economy simply absorbs any spending power we currently have with very little inflation.  We simply don't have enough disposable income & savings compared to our productive capacity to generate high inflation.

moda0306 wrote: Sorry K... Let's back u a bit.

I am not even really arguing for increased spending (though I think it could be a great idea).  In the spirit of "bi-partisanship," I'm calling for lowering payroll taxes.

But this will mean "more borrowing," and it won't necessarily put upward pressure on rates, because rates are near zero.  Or, probably better put, it could only put very, very light upward pressure on rates.

But considering how much supply of loanable funds we have, and how much demand for saving compared to investment we have right now, I don't see it as being much of a problem.  Hence why inflation isn't very high right now in the presence of very low interest rates (do the same thing in 1996 and we'd have huge inflation).  The macro-economics of it all simply don't warrant inflation.  People have no means to really generate it.  Our economy simply absorbs any spending power we currently have with very little inflation.  We simply don't have enough disposable income & savings compared to our productive capacity to generate high inflation.

Moda,

How will the government borrowing money to spend on it's programs make us better off? What will they wisely spend those dollars on that is profitable that businessmen are missing?

They will spend it on vote-buying schemes. It will cost the lenders losses in real terms since rates are negative and taxpaying public losses in nominal and real terms due to the interest, small though it may be right now. Since the debt will just be piled on top of other short-term debt it will be subject to the risk of rising rates.

If it's added to the debt it all has to be paid for eventually with direct taxes or printing anyway, or never paid off in which case it's even more expensive because of debt service payments forever. And btw the debt service is paid through printing or direct theft also.

This would just be like taking out a home equity line of credit to go on vacation or give to your dead beat brother to blow at Vegas.


I'm sure you disagree. I'm curious to hear what you think would be the result of bigger deficits. Also, if you think bigger deficits are better than smaller ones, do you think it would be best if the entire government budget was financed by borrowing and printing? If not, why not?

Do you know what a payroll tax holiday is, K?

It's a tax cut. Usually that's a "vote-buying scheme" even anarcho-capitalists agree with.

The result of it will be more private income and savings and since we are under productive capacity, it will expand real output, not just generate inflation.

Personally, I am always in favor of a tax cut that is not "paid for" since it benefits the people but destabilizes the government in the future. I find it interesting how some people's balanced budget dogma leads them to reject tax cuts. Don't they get that in a modern, vote-buying social democracy, spending never falls?

moda0306 wrote: Do you know what a payroll tax holiday is, K?

It's a tax cut. Usually that's a "vote-buying scheme" even anarcho-capitalists agree with.

The result of it will be more private income and savings and since we are under productive capacity, it will expand real output, not just generate inflation.

Yeah, yeah, but Moda!  Wait!  Don't give Obama more money!  If we have a payroll tax holiday, people might spend more money, which will be TAXED as business income. 

Seriously, though I can get on board with a payroll tax holiday.  My issue is that it wouldn't increase my spending.  If you need spending done when people won't spend, the only party left is the government. 

Pointedstick wrote: Personally, I am always in favor of a tax cut that is not "paid for" since it benefits the people but destabilizes the government in the future. I find it interesting how some people's balanced budget dogma leads them to reject tax cuts. Don't they get that in a modern, vote-buying social democracy, spending never falls?

But by that logic, wouldn't you also conclude that taxation never increases?

moda0306 wrote: Do you know what a payroll tax holiday is, K?

It's a tax cut. Usually that's a "vote-buying scheme" even anarcho-capitalists agree with.

The result of it will be more private income and savings and since we are under productive capacity, it will expand real output, not just generate inflation.

I can't beleive I'm allowing myself to be dragged into this........

Every dollar the government spends has to be paid for at some point with taxes or printing. The taxes and printing in the future will have to be higher than today to pay for what the government blows the money on. If you think taxes or printing are a drain (as you must since you advocate borrowing instead), then how is it you think you are escaping them?

The only way to escape them is if the government defaults on it's debt, but then all it's done is directly tax the creditors.

How on Earth do you think the government can possibly re-direct purchasing power towards goods and services better than the people who own the dollars? How on Earth do you think the government can better invest the money than profit-seeking businessmen?

The government cannot magically conjur up more resources than we currently have it can just missdirect them towards what we don't want.

Anyway it doesn't matter. Bigger deficits would just result in more inflation and higher inflation expectations. Unsustainable growth in some areas as a result of tax cuts or increased spending would see a boost at the expense of more sustainable sectors. Eventually when the bills came due and the stimulus was stopped the recession would kick in and it would be obvious to some that the economy was worse off for it all.

I would sggest reading some Harry Browne, he had a very good understanding of economics.

dragoncar wrote: If you need spending done when people won't spend, the only party left is the government. 

Have you seen the recent articles about how broke the Americans are? I think I saw that the average American entering retirement has 25k set aside although my memory might be off.

I think half the population doens't have 5k in the bank.

We don't need more spending, we need more saving.

dragoncar wrote: But by that logic, wouldn't you also conclude that taxation never increases?

Edit: updated graphs

It does far more rarely than spending gets cut, that's for sure. Since representative governance tends to give people what the average of their collective wants, it makes sense given that both high spending and low taxes are desirable to the electorate.

By way of illustration, here's the history of the top marginal tax rate:

[img width=350]http://www.slate.com/content/dam/slate/ ... iginal.jpg[/img]

And the history of government spending:

[img width=350]http://galens.typepad.com/.a/6a0112796f ... 0d7970c-pi[/img]

The scales aren't the same, but you get the idea.

On the topic of inflation though.........there is a benefit to the government indexing welfare, medicare, disability, unemployment and other welfare schemes to the CPI. Since the CPI understates the inflation rate, the "real" value of those welfare payments gets smaller and smaller thus decreasing their effect on the economy. People who would otherwise decline working in favor of a welfare scheme will find it less appealing than a job.

Not all people of course, but some will, and the numbers will increase as the real value keeps dropping.

The other benefit is by funding through inflation vs. taxes there is less of a penalty to getting a job, thereby further encouraging work and allowing workers to keep more value, provided they find ways to sheild their money from the inflation tax.

So all in all, if the government is going to spend anyway and not cut it's welfare vote-buying schemes, it might be better for productive people if it just prints it rather than steal it directly.

Ps,

Your graphs are misleading. To compare apples to apples, you should compare gross tax revenues to gross spending, or tax rates to spending/GDP or something like that.

I know you weren't trying to mislead, but it isn't going to leave someone with the correct impression of reality.

Good point, moda. I have substituted the second graph for one that's spending/GDP.

Still illustrates my point though.

moda0306 wrote: Ps,

Your graphs are misleading. To compare apples to apples, you should compare gross tax revenues to gross spending, or tax rates to spending/GDP or something like that.

I know you weren't trying to mislead, but it isn't going to leave someone with the correct impression of reality.

That's the one, and thanks moda, I wasn't going to point it out.

I can do even better than a payroll tax holiday: a complete, permanent federal tax holiday. They just print everything they spend.

This would stimulate the economy in real ways, probably the most important of which are:

1. Get rid of the IRS and compliance costs, which may be as much as the tax costs.
2. Increase incentives for entrepreneurs.

And no, I'm not kidding; I'm quite serious.

Libertarian666 wrote: I can do even better than a payroll tax holiday: a complete, permanent federal tax holiday. They just print everything they spend.

This would stimulate the economy in real ways, probably the most important of which are:

1. Get rid of the IRS and compliance costs, which may be as much as the tax costs.
2. Increase incentives for entrepreneurs.

And no, I'm not kidding; I'm quite serious.

That is quite "out of the box" thinking.  I'll have to ponder this.  Interesting.

... Mountaineer