Spending creates deficits in the government treasury.Today,the interest on the national debt is over $1 billion a day.In the private market AN OLD SAYING '' YOU NEED TO SPEND MONEY TO MAKE MORE MONEY, more profits on investments.Government, public sector, is just the opposite. Private sector goes bankrupt, government just prints more money, inflation and devalue of currency.
Yes, spending does create deficits. But are deficits bad? If the government didn't deficit spend, where would dollars come from? The real question is, are we spending too much? I see no evidence that we are.
The money supply had been expanded even when we had no national debt during the Jackson Adm. The fractional reserves banking system creates new currency every day. One has nothing to do with the other.
Banks only create credit, not currency. Read you dollar bills - they weren't printed by Citibank. And back in Jackson's day, there were many forms of currency in use - banks and railroads issued paper, so the comparison doesn't work.
Your way off. Most of the money in existence is digital. Very little currency is printed or minted. The entire purpose of the fractional reserve banking system is to increase or decrease the money supply. Not to mention open market operations
Banks can't increase the amount of credit without demand for that credit. And it doesn't much matter what the Fed does with reserve requirements, QE, or any other monetary policy, you cannot increase bank "money" without demand.
But the demand does not come from deficit spending, one has nothing to do with the other. If deficit spending nationally increased demand, than monetary velocity would be on fire after the last decade. But it's quite the opposite.
Demand comes from people having money in their pockets to spend. Deficit spending helps tremendously with that problem, because business isn't doing a sufficient job of it anymore. Cut government spending, and demand will plummet.
How much of that deficit spending has ended up in your pocket ?This is a fallacy. Demand has already plummeted. And we have the highest debt to GDP ratio's since the end of WW2.All that has happened is indiv/business have hoarded capital out of fear
Business don't hoard capital out of fear, they hoard capital because they don't see further investment making a profit. And that's because people don't have enough money in their pockets to spend. There is no private-sector mechanism to fix that.
No business hoard capital out of fear of increased regulation, taxes and reckless monetary policy. Every client I have ever come across who owns their own business has exactly that concern. An unstable currency effects long term business planning.
So please show me some evidence that our currency is "unstable." This is the problem, Landmark, your line of thought has zero evidence to back it up. But it's a very popular line among conservatives - they all foretell gloom and doom... someday.
10% per year is hardly modest, and well in excess of the upsurd geometric weightings now used. And in case you haven't noticed, every major currency in the world is in a race to the bottom with Japan in the lead. Hence the surge in commodities.
If you measure inflation under the old method of a "constant standard of living", that's exactly accurate. Which not surprisingly happens to correlate to the price movement in precious metals.Purchasing power has been crushed from 10yrs of spending
I would say instead that wages have not kept pace with modest inflation. Over the past 30 years, labor has not seen much of the economy's growth. Money is being made, but labor is not getting paid. That feels like inflation, but it's not.
Actually it's both. But from an inflation perspective CPI is not designed to measure a standard of living anymore. It was remodeled to slow the growth in the already massive unfunded liabilities. It allows a hidden tax to be passed on to the masses
Every dollar that is spent by the gov't ultimately is not used privately for more effective distribution of capital. Gov't is a necessary evil. There must be certain essential services provided by gov't. However, we have gone well beyond the essential roles of gov't. Gov't now accounts for far too much of our GDP as a nation which is counterproductive to long term growth and innovation. Cutting spending is a great idea as long as it's not the essential services that are cut first. But that's exactly what Washington will do. Very few politicians on either side wish to give up their pet projects. So they will not cut the excess fat in the budget. Nor will they address the 800 pound gorilla in the room, which is the unsustainable entitlements programs that now consume nearly 2/3rd's of the budget. Instead they will slash in areas that make the average American take notice. This way when the average American who is so caught up in the daily chaos of life gets even more frustrated, they'll vote against anyone who suggests of further cuts. Ultimately those people will pay for these cuts through the hidden tax of inflation as the race to the bottom among global currencies continues. Washington will continue to sell the population on all of these so called necessary functions of gov't. All the while real wages stagnate and purchasing power is eroded as the dollar goes a little less further.
That consumer demand and spending will go down if the government cuts spending is a certainty. That inflation will ensue when the money supply is increased is only theory - and that theory is incorrect. http://www.forbes.com/sites/johntharvey/2011/
Gov't spending negatively impacts long term aggregate demand,Read Henry Hazlitt "The fallacy of the broken window".You link did not post. However, we have altered how we calculate inflation numerous times to make it appear more attractive politicaly
This article is way off...i would suggest you read a "Monetary History of the US" by Dr Friedman. Gold is the ultimate universal currency benchmark, and it's price behavior over the last decade tells you how much purchasing power is lost.
Friedman has been debunked a million times over. I don't know why anybody still buys into his stuff, but it sure seems to resonate with conservatives. Also, that's a misapplication of the broken window fallacy.
Dr Friedman has been debunked..By who ??? He was the most respected economist of the last century. And the concept of monetary expansion causing inflation is not a conservative theory.If we used the same formula as we did in the 70's CPI is over 10%
The "natural level of employment" idea was (and is) ridiculous, as is monetarism. Did you check out that graph from the St. Louis Fed? The lesson there is that monetary policy can't control the amount of currency in circulation.
What is ridiculous about it ? Precisely, because the gov't is not the only place money is created or destroyed. But inflation is not only the result of what is circulating, but also what is owed.The more in debt you are, the less value currency has
The higher your debt to GDP ratio, the less credibility you have. The dollar has lost nearly 40% of its purchasing power in the last 5 years or so. The gov't has altered how we calculate inflation numerous times to hide the true impact of inflation
Debt to GDP means nothing. Japan's is way higher than ours, and their junk-rated bonds still sell at tiny yields. The market has nothing to do with those rates. Yields won't go up until the govt. wants them to.
Japan has a dramatically higher % of their debt held domestically when compared to the US. That means they are not subject to volatility as much. Yet their debt to GDP has led to more than two decades of stagnate growth as a tradeoff. It matters.
Volatility in the price of japans treasuries. The first piece of evidence is there GDP is the same size that it was in 1992. Money to support public finances ultimately is transferred from the private to the public sector, and stagnates growth
I looked at a history of Japan's treasuries, and they look very stable to me. They have a few economic problems, but coming up with new yen is not one of them. There's still nothing tying their debt to their "stagnant" economy.
Yes, correlation does not always mean causation. Yet they cannot cite an example of a nation deficit spending their way to prosperity. It has not worked in Japan, and will not work here. It is a theory they simply can't sell to the capital markets.
Well, it's really never been tried in earnest. The Keynesian principle of boosting the economy with govt. spending has always been hamstrung by deficit hawks. We know spending works, but the debt -> inflation thing has never been nailed down.
It was tried in a significant way in the 30's. And we got 2 decades of economic malaise. Versus the 1920/21 calamity that was even more severe. Gov't cut spending by a massive 65% and the economy rebounded substantially in 18 short months.
It won't. But our economic strength has been falsely inflated for a long time, because the Treasury spent more money than it took in (the House of Reps should all resign for letting this happen). Our high GDP is like meeting a guy who lives in a vast mansion full of expensive furniture only to learn that he bought all of the furniture with a credit card and that he's four months behind in his mortgage payments because he can only make a fraction of the payment every month. Solving the problem means he has to live a little more modestly. The sad fact is we can't make the economy better without making it far worse years down the road. The most we can do (without raising taxes on the rich, giving up social security, or shutting down our military empire) is to stabilize the economy at its true level, which will require more recession.
Even worse, we're letting the Pentagram decide on its own budget cuts, which means it will propose cuts on soldier's benefits and personnel in order to make the President look bad. Meanwhile we have a war going on that provides no return on investment that is receiving full funding.
They want to stop inflation too. Printing less money means slowing inflation, which means interest rates will go up and borrowing will contract. That means less operating capital for companies, which means less hiring, less marketing, less risk-taking. That means reduced quarterly revenue, which means recession. That is usually followed by overhead reduction. The question is, do we want to see want this economy really looks like behind the facade?
Why do you think that we are "mortgaging our future" by spending today? The federal budget is not comparable to a household budget, or even a state's budget, because they cannot create dollars. Federal "borrowing" does not have to be repaid. Ever.
That is simply ridiculous. More than half of the national debt is owed abroad and does have to be repayed. Tell that to anyone who owns a treasury bond. Simply creating dollars is why gold is trading at 1600 an ounce.
The national debt isn't going down, is it? So, in a net sense, bonds are not being cashed in. But more are being bought all the time. Cash is just changing hands between buyers of bonds and sellers, that's it. Think on a macro scale.
I hate to break the news to you, but the Fed is the only real buyer these days. Without QE there is no demand for US treasuries. Without QE, rates skyrocket. I am going to guess you havent spent a lot of time in the bond market.
I understand the bond market just fine. QE isn't there to stimulate bond demand. And demand for bonds is there - I don't know where you are getting your information, but they are having no problem selling bonds at all.
My information come from 16 years of portfolio mgmt. The Fed is by far and away the largest buyer of US debt. The demand is only there at substantially higher rates without QE. Do you think guys like Jeff Gundlach are buying treasuries...No Way
Nobody buys treasuries unless they want a risk-free investment. But they are still getting snapped up at tiny yields, and it's not just the govt. that's buying them. China is buying at low yields, Japan is buying, banks are buying, etc.
Treasuries are now know in the investment world as return free risk. They have become precisely the opposite. And foreign gov't are slowly divesting. They only buy on the short end of the curve these days. The Fed is the only real demand.
The evidence says otherwise. If it was true that nobody wanted our bonds, then nobody has to buy them. The Fed cannot force them to do so. But they still auction off at low yields. Not that it matters, because it isn't even necessary to do so.
There not buying them,Thats the point. The Fed is dominating the bid with no exit strategy because they know it will be a mess when they leave the table.I suggest you buy some 30 year treasuries and tell me what there worth in 10 yrs.
Bond sales are not operationally essential in a fiat currency economy, as they are not needed to raise or borrow money that can simply be printed. If our govt. bought every bond they issued, it wouldn't matter, as it's just a book operation anyway.
When money is simply printed in excess based on nothing, the standard of living goes down aka Japan and the US for the last ten years. If printing was the answer Zimbabwe would be an economic super power with their trillion dollar bills
But new money's value is not based on nothing, it's based on production. If your economy can meet the new demand, there aren't "excess" dollars in play - and, there is more production to meet the new demand, over and above what would have been.
Yes currency creation should be aligned with the creation of capital. But that is not what we are doing. Fed policy is just creating cash that is only ending up as excess reserves. There is no current policy that incents capital formation.
Capital takes care of itself. If people were spending money - if they had money to spend - business always does a great job of separating them from their money. Money starts at the bottom and trickles up, not the other way around.
That't not true. New capital comes from new innovations.. That first requires capital formation to put the innov to action. Which has to come from the top. Business invest new capital all the time on speculation without current demand.
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