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Read the rules in the OP before posting, please. In order to ensure that this thread continues to meet TL standards and follows the proper guidelines, we will be enforcing the rules in the OP more strictly. Be sure to give them a re-read to refresh your memory! The vast majority of you are contributing in a healthy way, keep it up! NOTE: When providing a source, explain why you feel it is relevant and what purpose it adds to the discussion if it's not obvious. Also take note that unsubstantiated tweets/posts meant only to rekindle old arguments can result in a mod action. | ||
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Nikk
United States63 Posts
On November 22 2012 09:52 farvacola wrote: In any case, I think certain Austrian modalities of thinking can be quite useful when applied to Keynesian theory Thanks, that is interesting. Can you expand on your comment about Austrian thinking being useful to Keynesian theory? | ||
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farvacola
United States18824 Posts
On November 22 2012 10:34 Nikk wrote: Thanks, that is interesting. Can you expand on your comment about Austrian thinking being useful to Keynesian theory? Well I think by far the biggest Austrian contribution to the field of economics would be a particular brand of economic skepticism that can at times go missing during extended periods of singular economic policy. To be frank, any time anyone questions the validity of something like a Laffer Curve or the Gauss-Markov Theorem, they are acting on an impulse more or less inspired by the historical presence of Hayek, Rothbard, and Mises. The problem ends up being the totality of the Austrian skepticism; rather than acknowledge the limitations of a particular economic model and move on in pragmatic fashion, they are want to simply throw it out altogether. Hayek sees the delineation of an economic model as an inherently wasteful framework, though his concept of "waste" can very easily be considered "relative inaccuracy", and therein lies the problem. | ||
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oneofthem
Cayman Islands24199 Posts
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farvacola
United States18824 Posts
On November 22 2012 11:30 oneofthem wrote: i think one can be perfectly skeptical of the laffer curve or whatever thin result of thin models without invoking rothbard etc. Most certainly; I wasn't really referring to an invocation as much as establishing a historical lineage for a particular brand of thought. In other words, the now outdated Road to Serfdom and Bureaucracy were once simply dated. | ||
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oneofthem
Cayman Islands24199 Posts
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sam!zdat
United States5559 Posts
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NHL Fever
Canada104 Posts
On November 22 2012 09:20 aksfjh wrote: The Fed buys bonds through the credit markets. All it basically does is create a middle man and prevent the Fed from discouraging private purchases of U.S. debt. Which is just the printing of money. The problem is not the debt per se, but that it removes your freedom as a sovereign individual to gain from your labors, and gives the power over to the government to basically determine the value of what you have. It's totally unjust, IMO, for the government to decide because it wants to spend more money, it should be able to devalue the savings of people who behaved responsibly with theirs. I think this is what the 'debt is fine, we can't be insolvent' crowd misses or perhaps does not care about. It essentially already is Monopoly money. However, the "social contract" prevents it from being seen as such. As long as people have faith that their money can be exchanged for what they want and need, the strength of the dollar (and other major currencies) will remain. Believe it or not, gold and silver are essentially Monopoly money as well, it's just the government can't manipulate the supply (as easily). The fact that the government cannot manipulate the supply, is exactly why gold and silver is NOT monopoly money. [B] Edit: In case it wasn't clear, saying that "at some point the interest from the debt will not be able to be paid" makes no sense at all. We can always pay interest on dollar debt. Always, without exception. There is no possible circumstance where this isn't the case. Why do you say otherwise? Technically correct, but this misrepresents the burden of debt on the economy. As debt increases, it eats more and more real productivity out of the economy and becomes a major drag. To pay it you have to print money. When you print money, you downgrade purchasing power. When you downgrade purchasing power, people buy less stuff, build less stuff and hire less people. People and government only want US bonds if they will bring a return. When you constantly print money, holding bonds becomes a losing arrangement, because even with interest you are actually losing value while holding them. | ||
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oneofthem
Cayman Islands24199 Posts
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sam!zdat
United States5559 Posts
On November 22 2012 12:07 NHL Fever wrote: sovereign individual remarkably few of those in the history of, well, ever | ||
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Nikk
United States63 Posts
On November 22 2012 12:07 NHL Fever wrote: Which is just the printing of money. The problem is not the debt per se, but that it removes your freedom as a sovereign individual to gain from your labors, and gives the power over to the government to basically determine the value of what you have. It's totally unjust, IMO, for the government to decide because it wants to spend more money, it should be able to devalue the savings of people who behaved responsibly with theirs. I think this is what the 'debt is fine, we can't be insolvent' crowd misses or perhaps does not care about. The fact that the government cannot manipulate the supply, is exactly why gold and silver is NOT monopoly money. Technically correct, but this misrepresents the burden of debt on the economy. As debt increases, it eats more and more real productivity out of the economy and becomes a major drag. To pay it you have to print money. When you print money, you downgrade purchasing power. When you downgrade purchasing power, people buy less stuff, build less stuff and hire less people. People and government only want US bonds if they will bring a return. When you constantly print money, holding bonds becomes a losing arrangement, because even with interest you are actually losing value while holding them. Again, this sounds like an argument from ideology between people who have differing beliefs about the social contract. That's fine but I wish it was represented that way and not passed off a good economics. As far as the burden of debt is concerned, this sounds like it can be summed up as "too much inflation is bad". As long as the budget is an investment in real assets or productivity (like lowering unemployment or building infrastructure or health of society or education etc) I don't see how it is an issue. | ||
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DeepElemBlues
United States5079 Posts
On November 22 2012 12:07 NHL Fever wrote: sovereign individual This "sovereign individual" idea, when did the idea of total sovereignty of conscience get adopted and changed to total or near-total sovereignty of behavior? | ||
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Romantic
United States1844 Posts
On November 21 2012 23:50 DisneylandSC wrote: I think someone forgot to read the OP, or the rest of this thread for that matter. If you would like to disagree with all of the above you are of course free to do so. At the moment however you are only stating cliches. Many of which are innaccurate and / or contradict the above and, worst of all, are often incoherent. As an example you are presenting us with the following, supposed, dichotomy: "but they do need to either pay interest or allow inflation to make everyone poorer" At the very least one should have to admit that these aren't the only options from just the above posts. What are you talking about? I'm being perfectly polite. Is accusing someone of not reading the thread and waving away what they said as, "cliches" that are wrong without explaining, a way of showing or using evocative language? The government can either pay its debts with tax revenue or printed currency, or it can simply refuse to pay back debts and throw the country in to a crisis. I guess you could argue it isn't a dichotomy because the sovereign can default, but I assumed we are discussing reasonable options. Ok, you win, a state can default too even if that is probably the worst option. I am wrong and you are right, governments can default if they'd like. | ||
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NicolBolas
United States1388 Posts
On November 22 2012 12:59 Nikk wrote: Again, this sounds like an argument from ideology between people who have differing beliefs about the social contract. That's fine but I wish it was represented that way and not passed off a good economics. As far as the burden of debt is concerned, this sounds like it can be summed up as "too much inflation is bad". As long as the budget is an investment in real assets or productivity (like lowering unemployment or building infrastructure or health of society or education etc) I don't see how it is an issue. I'm not sure where this is an ideological issue. I admit that I haven't followed every bit of this analysis, but it seems to me that he's made a pretty convincing case that large quantities of debt is bad. The "too much inflation is bad" issue is simply this. If the government incurs more debt than this debt's spending grows the economy (ie: if it spends more wealth than the economy creates), then the result is a net loss of economic value. If you incur $500 billion dollars of extra debt to lower unemployment, and the added jobs increases the GDP by $500 billion dollars, then the investment broke even. I don't see where the ideology comes in there; this all seems to be an inescapable outgrowth of economics. That's not to say that all debt is bad of course. As stated, incurring debt, if it grows the economy by more than the debt costs, is good for the economy as a whole. However, if that spending could be done without growing the debt, then that would be better still for the economy, yes? If the deficit consistently outpaces economic growth, then it becomes an economic drag sooner or later. It's a Ponzi scheme: borrowing from one to pay another. Sooner or later, you're going to have to pay up. And that's when the economic drag hits. Debt is not a magical bag where you can pull money from in perpetuity; it has costs, and those costs are real. Deficit spending to help keep the economy solvent or to jump-start it in bad times is good. However, you're borrowing that money from the future; sooner or later, it's going to be paid back. you have to pay it back. Either it's going to be paid back directly (by paying it back), or it's going to be paid back through currency devaluation, interest payments, and other economic means. Think about the percentage of the budget that is spent each years just to pay interest on the debt. That's money going to waste. That fuels either further debt (classic Ponzi: borrowing money to pay off more money) or further devaluation. Or, at some point, you just default, which is pretty much death. | ||
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Nikk
United States63 Posts
The problem is not the debt per se, but that it removes your freedom as a sovereign individual to gain from your labors, and gives the power over to the government to basically determine the value of what you have. It's totally unjust, IMO, for the government to decide because it wants to spend more money, it should be able to devalue the savings of people who behaved responsibly with theirs. As for government debt being a "Ponzi scheme", there is no "sooner or later you pay up". We aren't actually borrowing anything. We are trading one type of debt (currency) for another type of debt (bond). Yes, government deficits means more money comes into the economy than leaves, that is what we call private savings. Coincidentally (not really) US pension assets are roughly 16 trillion, just like our national debt. Saying "big debt is bad and it leads to inflation" just isn't painting an accurate picture of what is going on. We have (monetary) inflation when government deficits are larger than the economy's desire to save. Evidence of this would be employers trying to hire more people than there are available to work, or recording actual abnormal inflation. Our deficits actually aren't currently large enough to match global demand for savings. When the deficit isn't high enough to facilitate private savings (because there are tons of incentives to save) private debt skyrockets to fund savings (this is what happened leading up to and during the Clinton surplus years). Sector Financial Balances The extreme fear for even the potential of inflation is really irrational. Inflation is lower than average even though our debt is "too high" and our deficits are at "record highs". Japan has been running deficits larger than ours for the last 20 years, with interest rates at or near 0% the entire time. We're not Greece, and we never will be. Again, paying interest on bonds is a policy decision to encourage savings and to hit the target interest rate. The idea that interest payments are "going to waste" doesn't make sense. They directly fund private savings, and are the result of policy. That policy can be changed if needed. | ||
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farvacola
United States18824 Posts
Iowa GOP Chairman A.J. Spiker said on Tuesday that, despite criticism of the Ames straw poll from Gov. Terry Branstad (R-Iowa), the governor won't have the final say over the poll's future. "Gov. Branstad certainly won't be the person determining if there's a straw poll," Spiker told The Hill. Branstad said earlier this week that, considering Rep. Michele Bachmann's (R-Minn.) win of the poll this cycle but eventual failure to be competitive in the primaries, the straw poll "has outlived its usefulness." “It has been a great fundraiser for the party but I think its days are over," he said. The straw poll has for 33 years been a must-attend for Republican presidential contenders, as an opportunity for candidates to fundraise and test-run their campaign organizations. Source | ||
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TheFrankOne
United States667 Posts
So is this bad? I say no, it doesn't matter what Greece's balance is when they are losing 10% of GDP per quarter, the effect of these cuts compounds the economic loss and leaves them with higher and higher debt to GDP ratios, making the debt they still have harder and harder to pay off. http://www.tradingeconomics.com/greece/government-debt-to-gdp http://www.tradingeconomics.com/greece/gdp The entire EU has been cutting and cutting, the best analogue for the US is the UK, for monetary reasons. The EU is back into a recession, UK growth flat lined in 2010 and they dropped back into a recession soon after and because of their austerity project started. (IMF multiplier estimate revision is what proves the causality there, not the charts.) http://www.businessinsider.com/chart-of-the-day-us-vs-uk-growth-2012-4 http://delong.typepad.com/sdj/2012/09/we-can-no-more-afford-to-elect-ryan-romney-than-britain-in-2010-could-afford-to-elect-cameron-osborne-clegg.html The IMF has done a huge upward revision of the fiscal multiplier on government spending from their original .5 estimate when they recommended these austerity actions to somewhere around 1 or higher. http://ftalphaville.ft.com/2012/10/09/1199151/its-austerity-multiplier-failure/ http://seekingalpha.com/article/935291-the-imf-and-the-fiscal-multiplier I could find more data about Spain and Ireland who's actual growth has been tepid or negative, creating larger budget holes despite the ECB's encouragement and rosy promises, but the moral of the story seems clear to me: austerity kills growth in an economy running well below potential. Since the United States doesn't seem to have any real worries about the bond vigilantes, isn't a solid budget that keeps our counter cyclical payments and some stimulative programs in place better than cuts? Sure you can talk about cutting in 2014 or so but imposing cuts now would clearly be a disaster. Why cut now, why not up the inflation target a point or two to speed up private deleveraging and set the stage for easier payment of public debt down the road while encouraging exports? Austerity has caused a self imposed recession in the EU but Americans are trying to run into that pit after them and I don't understand why. Edit: Another question: What do you guys see as the largest failure by Obama in trying to strengthen the recovery, I think it was not providing enough support to homeowners while providing massive support to banks. Mostly what this guy says: http://www.washingtonpost.com/business/economy/economists-obama-administration-at-odds-over-role-of-mortgage-debt-in-slow-recovery/2012/11/22/dc83f25e-2e87-11e2-89d4-040c9330702a_print.html | ||
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WhiteDog
France8650 Posts
In Saudi Arabia, the saving rate is around 40% because there is no middle class (only rich people and poor people) and no developped finance (no possibility for loan or credit). Because of that, all the money those countries get from international trade is reinvested in developped countries who are always in need of liquidity and who have well established finance system that permit the liquidity to go from the people who have it to the people who needs it. With risk control finance innovations such as swap, the risk is completly taken by developped countries (the US above all) and the profit that China or Saudi Arabia will make through their loan to developped countries is completly safe. So in the end, as I see it, one of the biggest problem is not that developped countries have too much debt, but that the free mobility of international liquidity in a non perfect world, especially with high differences in the development of the finance sector, is detrimental to developped countries in the long run. In this regard, it's perfectly normal that, since the end of bretton woods, the international flow of liquidity completly switched. | ||
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oneofthem
Cayman Islands24199 Posts
here's a presentation of an IMF study using very mainstream methodology on how inequality, specifically the degenerating household income basis for consumption, leads to expansion of finance (selling of credit) and that in turn leads to trouble (if not exploitation) | ||
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JonnyBNoHo
United States6277 Posts
On November 25 2012 01:40 TheFrankOne wrote: So we have been discussing the debt but I would like to put some numbers to it. Current US Debt to GDP is over 100% and climbing (http://www.usdebtclock.org/) Our "structurally adjusted primary balance" is the worst of any developed country except Japan. http://www.economonitor.com/dolanecon/2012/10/08/by-one-key-budget-indicator-the-structural-primary-balance-even-greece-is-doing-better-than-the-united-states-why-that-should-worry-us/ So is this bad? I say no, it doesn't matter what Greece's balance is when they are losing 10% of GDP per quarter, the effect of these cuts compounds the economic loss and leaves them with higher and higher debt to GDP ratios, making the debt they still have harder and harder to pay off. http://www.tradingeconomics.com/greece/government-debt-to-gdp http://www.tradingeconomics.com/greece/gdp The entire EU has been cutting and cutting, the best analogue for the US is the UK, for monetary reasons. The EU is back into a recession, UK growth flat lined in 2010 and they dropped back into a recession soon after and because of their austerity project started. (IMF multiplier estimate revision is what proves the causality there, not the charts.) http://www.businessinsider.com/chart-of-the-day-us-vs-uk-growth-2012-4 http://delong.typepad.com/sdj/2012/09/we-can-no-more-afford-to-elect-ryan-romney-than-britain-in-2010-could-afford-to-elect-cameron-osborne-clegg.html The IMF has done a huge upward revision of the fiscal multiplier on government spending from their original .5 estimate when they recommended these austerity actions to somewhere around 1 or higher. http://ftalphaville.ft.com/2012/10/09/1199151/its-austerity-multiplier-failure/ http://seekingalpha.com/article/935291-the-imf-and-the-fiscal-multiplier I could find more data about Spain and Ireland who's actual growth has been tepid or negative, creating larger budget holes despite the ECB's encouragement and rosy promises, but the moral of the story seems clear to me: austerity kills growth in an economy running well below potential. Since the United States doesn't seem to have any real worries about the bond vigilantes, isn't a solid budget that keeps our counter cyclical payments and some stimulative programs in place better than cuts? Sure you can talk about cutting in 2014 or so but imposing cuts now would clearly be a disaster. Why cut now, why not up the inflation target a point or two to speed up private deleveraging and set the stage for easier payment of public debt down the road while encouraging exports? Austerity has caused a self imposed recession in the EU but Americans are trying to run into that pit after them and I don't understand why. Edit: Another question: What do you guys see as the largest failure by Obama in trying to strengthen the recovery, I think it was not providing enough support to homeowners while providing massive support to banks. Mostly what this guy says: http://www.washingtonpost.com/business/economy/economists-obama-administration-at-odds-over-role-of-mortgage-debt-in-slow-recovery/2012/11/22/dc83f25e-2e87-11e2-89d4-040c9330702a_print.html I don't see America as running into the austerity camp. To me the fiscal cliff would be austerity and the talks around it are attempts at avoiding austerity. Either way there will still be a degree of austerity but as long as the cliff is avoided the US economy should easily avoid a recession. At the same time not coming up with a credible plan to reduce the deficit over the long term would be a problem too. As your link to the structurally adjusted primary balance showed, economic growth alone won't balance the budget. So some combination of spending cuts and revenue increases is needed, otherwise problems in the bond market could develop (or could not, but wow what a risk). A higher rate of inflation could help but there's two problems with that. The first being the Fed's reluctance since there's a risk that it would lose credibility. The second being the impact it would have on the retirees - they've already been hurting for a while due to low interest rates, even lower real rates would hurt them more. As far as missed opportunities for Obama goes, I'd certainly agree that the attempts at mortgage relief were fail (HAMP-ering the recovery. I'd also add two things to the list - Obamacare didn't bend the cost curve down and we've had no meaningful immigration reform (more immigrants = fewer vacant homes). | ||
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oneofthem
Cayman Islands24199 Posts
capital won't be taxed. it will just hide. if you want more tax revenue you need to shift income and wealth more evenly. the high professional class is holding up pretty well, problem is the bottom 60-70% of people getting absolutely destroyed. the latest housing crisis is only the symptom of a long developing worrying trend. | ||
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