On August 07 2012 16:46 JonnyBNoHo wrote: The problem with your math on negative rates is that the cash raised in the sale of the bond is spent, not saved (by definition, since we're dealing with deficits). Therefore, when the bond comes due the government will need to either refinance the bond at a rate that may be higher than inflation (and likely so!) or it will need to tax the citizenry to collect the cash necessary for repayment.
No, NOT by definition.
Cash raised in a bond sale does not have to be spent on stimulus. It's perfectly acceptable to do stimulus using only the money people effectively pay you through the negative interest rate. If this is done, there is absolutely no need to refinance a bond after is reaches maturity. nor is there any reason to tax the citizenry as the bond literally pays for itself and more.
That's why your identity is broken. Fiscal policy=stimulus*, but it does not have to necessarily equal deficit spending, nor does it necessarily equate deficits.
*This is also debatable. Austerity is also considered fiscal policy, but austerity is not always stimulus.
If you don't spend the cash raised in the bond sale than there is no deficit. There is new debt, but not a deficit.
A deficit is the excess in spending over revenue.
I didn't say fiscal policy = stimulus, I said expansionary fiscal policy = stimulus.
On August 07 2012 17:22 JonnyBNoHo wrote: If you don't spend the cash raised in the bond sale than there is no deficit. There is new debt, but not a deficit.
A deficit is the excess in spending over revenue.
You're completely correct here. But you're wrong in that this is necessarily deficit spending.
Also, as previously stated, if you don't spend the cash raised, you can still run expansionary fiscal policy from the collected interest alone in the case of negative interest rates.
On August 07 2012 17:22 JonnyBNoHo wrote: I didn't say fiscal policy = stimulus, I said expansionary fiscal policy = stimulus.
This is true, but expansionary fiscal policy does not always equate stimulus, either. If full employment is already in effect, expansionary fiscal policy may not be stimulus, but instead pure inflation.
On August 07 2012 17:22 JonnyBNoHo wrote: If you don't spend the cash raised in the bond sale than there is no deficit. There is new debt, but not a deficit.
A deficit is the excess in spending over revenue.
You're completely correct here. But you're wrong in that this is necessarily deficit spending.
Also, as previously stated, if you don't spend the cash raised, you can still run expansionary fiscal policy from the collected interest alone in the case of negative interest rates.
Well, its negative real interest rates and positive nominal rates so there's still cash flowing from the treasury's coffers to the bond holders. If the government doesn't spend the cash it raised then each year it loses purchasing power on that cash due to inflation.
The only way for the government to make money by borrowing it is to (basically) be a bank and lend the money it borrowed out at a higher rate and earn the spread.
On August 07 2012 17:22 JonnyBNoHo wrote: I didn't say fiscal policy = stimulus, I said expansionary fiscal policy = stimulus.
This is true, but expansionary fiscal policy does not always equate stimulus, either. If full employment is already in effect, expansionary fiscal policy may not be stimulus, but instead pure inflation.
On August 07 2012 18:08 JonnyBNoHo wrote: Well, its negative real interest rates and positive nominal rates so there's still cash flowing from the treasury's coffers to the bond holders. If the government doesn't spend the cash it raised then each year it loses purchasing power on that cash due to inflation.
The only way for the government to make money by borrowing it is to (basically) be a bank and lend the money it borrowed out at a higher rate and earn the spread.
I'm still talking about your attempted identity, here.
If you want to add in positive nominal interest rates instead of just worrying about the real interest rates, the same effect still stands, but the Treasury has to do somewhat more work in order to get the money. This was like five posts ago.
On August 07 2012 18:08 JonnyBNoHo wrote: Well, its negative real interest rates and positive nominal rates so there's still cash flowing from the treasury's coffers to the bond holders. If the government doesn't spend the cash it raised then each year it loses purchasing power on that cash due to inflation.
The only way for the government to make money by borrowing it is to (basically) be a bank and lend the money it borrowed out at a higher rate and earn the spread.
I'm still talking about your attempted identity, here.
If you want to add in positive nominal interest rates instead of just worrying about the real interest rates, the same effect still stands, but the Treasury has to do somewhat more work in order to get the money. This was like five posts ago.
Can you demonstrate how negative real interest rates muck up my statement? I'm not seeing it.
On August 07 2012 18:43 JonnyBNoHo wrote: Can you demonstrate how negative real interest rates muck up my statement? I'm not seeing it.
The problem with your stated identity?
It's a repeat of what's already been stated in posts 17:45 and 17:11. I think you already accepted that part.
The new part was the complication involving positive nominal rates and negative real rates. Which was a complication introduced by another poster a page ago, and a complication that's not all too difficult to address to still make money off of negative real rates (the money can't be held in of itself for 0% real rate of return due to the positive nominal yield, but investing it into a durable good or a basket of durable goods with an average of 0% real rate of return isn't all that difficult).
Which is irrelevant in the case of the stated identity (as a zero nominal interest rate bond with a negative real interest rate still falls within the "expansionary fiscal policy=stimulus=deficit spending identity" and contradicts it), but is still interesting to consider in of itself.
On August 07 2012 18:43 JonnyBNoHo wrote: Can you demonstrate how negative real interest rates muck up my statement? I'm not seeing it.
The problem with your stated identity?
It's a repeat of what's already been stated in posts 17:45 and 17:11. I think you already accepted that part.
The new part was the complication involving positive nominal rates and negative real rates. Which was a complication introduced by another poster a page ago, and a complication that's not all too difficult to address to still make money off of negative real rates (the money can't be held in of itself for 0% real rate of return due to the positive nominal yield, but investing it into a durable good or a basket of durable goods with an average of 0% real rate of return isn't all that difficult).
Which is irrelevant in the case of the stated identity (as a zero nominal interest rate bond with a negative real interest rate still falls within the "expansionary fiscal policy=stimulus=deficit spending identity" and contradicts it), but is still interesting to consider in of itself.
Your previous posts as well as this one are incorrect.
17:11 post
Cash raised in a bond sale does not have to be spent on stimulus. It's perfectly acceptable to do stimulus using only the money people effectively pay you through the negative interest rate. If this is done, there is absolutely no need to refinance a bond after is reaches maturity. nor is there any reason to tax the citizenry as the bond literally pays for itself and more.
17:45 post
Also, as previously stated, if you don't spend the cash raised, you can still run expansionary fiscal policy from the collected interest alone in the case of negative interest rates.
I don't see how any of the points you are bringing up aren't already accounted for when calculating the deficit.
Really seems that Romney (in his heart) is a good hearted fellow and he is very intelligent. What he is saying now - is only because he needs that southern pull. The Romney of old would get my vote in a minute. The problem is that the Romney of old will never be able to run for President because corporations like the NRA will give millions of dollars to other candidates who support their cause.
On August 07 2012 18:43 JonnyBNoHo wrote: Can you demonstrate how negative real interest rates muck up my statement? I'm not seeing it.
The problem with your stated identity?
It's a repeat of what's already been stated in posts 17:45 and 17:11. I think you already accepted that part.
The new part was the complication involving positive nominal rates and negative real rates. Which was a complication introduced by another poster a page ago, and a complication that's not all too difficult to address to still make money off of negative real rates (the money can't be held in of itself for 0% real rate of return due to the positive nominal yield, but investing it into a durable good or a basket of durable goods with an average of 0% real rate of return isn't all that difficult).
Which is irrelevant in the case of the stated identity (as a zero nominal interest rate bond with a negative real interest rate still falls within the "expansionary fiscal policy=stimulus=deficit spending identity" and contradicts it), but is still interesting to consider in of itself.
Your previous posts as well as this one are incorrect.
Cash raised in a bond sale does not have to be spent on stimulus. It's perfectly acceptable to do stimulus using only the money people effectively pay you through the negative interest rate. If this is done, there is absolutely no need to refinance a bond after is reaches maturity. nor is there any reason to tax the citizenry as the bond literally pays for itself and more.
Also, as previously stated, if you don't spend the cash raised, you can still run expansionary fiscal policy from the collected interest alone in the case of negative interest rates.
I don't see how any of the points you are bringing up aren't already accounted for when calculating the deficit.
If government spends money that is borrowed at negative real interest rates, then that adds to the deficit only because deficit is defined as government spending - tax revenue, and borrowing money doesn't directly increase tax revenue. But this is just semantics.
Deficits only matter to the extent that it makes total government debt worse. And as Acker points out, if government borrows money at negative real interest rates and spends the part that is the spread between the nominal interest rate and the inflation rate, then the total real government debt is unchanged, in this sense it is free money. Thus, money can be spent while leaving the government's debt burden unchanged.
Haven't you flip-flopped on stimulus like a hundred times already? From stimulus can help, to stimulus is a waste of money, to all the stimulus money went to "special interests", to well targeted stimulus is good, to the deficit matters so doing stimulus to increase it is bad, to it's not good that Obamacare decreases the deficit, to doing another stimulus is bad even with negative real interest rates.
I can't keep track of your position on stimulus. It's more amorphous than Mitt Romney. And if not stimulus, then what is the correct policy response to a recession?
On August 07 2012 14:41 JonnyBNoHo wrote: I don't see how setting a cutoff in those terms makes sense.
Care to explain why a cutoff the effectiveness of IS policy makes no sense in terms of CPI and nGDP? I believe you were using "all the typical" economic indicators. Or did you mean "all but CPI and nGDP"?
If meant the latter, I can give you more typical economic indicators to use for your cutoff for effective IS policy (Treasury real yield curves and current/LR GDP real GDP come to mind, the basic set used by every macroeconomic professor in the United States). If you mean that you use more variables than CPI and nGDP, can you explain the most general cutoffs you use, which indicators they pertain to, and why you use them in conjunction?
You really need to re-frame your original question. I'm not going to have a discussion with you about fiscal policy strictly within the confines of your academic background.
On August 08 2012 00:09 paralleluniverse wrote: Deficits only matter to the extent that it makes total government debt worse. And as Acker points out, if government borrows money at negative real interest rates and spends the part that is the spread between the nominal interest rate and the inflation rate, then the total real government debt is unchanged, in this sense it is free money. Thus, money can be spend while leaving the government's debt burden unchanged.
This works only as economic theory but it will hit financial reality sooner or later.
The piece you're missing/ignoring is that bond yields are a historical fact. So sure, the US is getting "free" money today because people are willing to buy Treasury yields at zero or slightly negative rates in real terms. But if the US continues to run deficits, then it will need to continue borrowing money to pay those bonds back. That's how debt crises start, when interest rates take a jump and suddenly a government dependent on a certain rate struggles with the new burden.
The money is only free if the US government uses it wisely, either holding it (getting a zero rate) or investing it in assets that will grow. You can argue that the government IS doing that by investing in people through social programs, but there is an implicit assumption that you need those people to eventually get jobs (i.e. pay taxes). But if the government is spending it on things and does not get a return, sooner or later we will have a very big problem.
I don't think conservatives are being completely ridiculous when they are skeptical of this plan and want to see proof that the government can or is investing in growth assets.
On August 08 2012 00:09 paralleluniverse wrote: Deficits only matter to the extent that it makes total government debt worse. And as Acker points out, if government borrows money at negative real interest rates and spends the part that is the spread between the nominal interest rate and the inflation rate, then the total real government debt is unchanged, in this sense it is free money. Thus, money can be spend while leaving the government's debt burden unchanged.
This works only as economic theory but it will hit financial reality sooner or later.
The piece you're missing/ignoring is that bond yields are a historical fact. So sure, the US is getting "free" money today because people are willing to buy Treasury yields at zero or slightly negative rates in real terms. But if the US continues to run deficits, then it will need to continue borrowing money to pay those bonds back. That's how debt crises start, when interest rates take a jump and suddenly a government dependent on a certain rate struggles with the new burden.
The government only needs to roll over the original debt for expansionary fiscal policy in the case of negative interest rates if the money spent also consists of the initial loan rather than the money collected from the negative real interest rate.
If you want to talk about reservicing debt racked up before a drop in aggregate demand (debt before expansionary fiscal policy), that's largely a different topic. One that does pertain to reality, but not to the identity.
On August 08 2012 00:22 coverpunch wrote: The money is only free if the US government uses it wisely, either holding it (getting a zero rate) or investing it in assets that will grow. You can argue that the government IS doing that by investing in people through social programs, but there is an implicit assumption that you need those people to eventually get jobs (i.e. pay taxes). But if the government is spending it on things and does not get a return, sooner or later we will have a very big problem.
Holding money at a zero percent real rate of return...isn't that difficult. At all. That basically means you're underpreforming the world's GDP trend by anywhere from 2 to five percent, which would get any private investor fired.
Once again, it's irrelevant to his identity, as an identity must always hold instead of sometimes hold.
On August 08 2012 00:22 coverpunch wrote:
I don't think conservatives are being completely ridiculous when they are skeptical of this plan and want to see proof that the government can or is investing in growth assets.
This is a perfectly legitimate point of view that can be supported or refuted by data. Unfortunately, the original poster in this debate did not define his econometric boundaries for when rightwards IS policy was acceptable and when it wasn't (although he obviously believes that sometimes rightwards IS policy is a good and bad thing), and his views cannot therefore be qualified in a reasonable fashion.
Really seems that Romney (in his heart) is a good hearted fellow and he is very intelligent. What he is saying now - is only because he needs that southern pull. The Romney of old would get my vote in a minute. The problem is that the Romney of old will never be able to run for President because corporations like the NRA will give millions of dollars to other candidates who support their cause.
I had much more positive thoughts for McCain before his run for the presidential office. But in the end, if you betray your own thoughts then whatever good will you have and might have had doesn't really hold much ground anymore. My feelings for the democrats are about the same, if not harsher.
On August 07 2012 18:43 JonnyBNoHo wrote: Can you demonstrate how negative real interest rates muck up my statement? I'm not seeing it.
The problem with your stated identity?
It's a repeat of what's already been stated in posts 17:45 and 17:11. I think you already accepted that part.
The new part was the complication involving positive nominal rates and negative real rates. Which was a complication introduced by another poster a page ago, and a complication that's not all too difficult to address to still make money off of negative real rates (the money can't be held in of itself for 0% real rate of return due to the positive nominal yield, but investing it into a durable good or a basket of durable goods with an average of 0% real rate of return isn't all that difficult).
Which is irrelevant in the case of the stated identity (as a zero nominal interest rate bond with a negative real interest rate still falls within the "expansionary fiscal policy=stimulus=deficit spending identity" and contradicts it), but is still interesting to consider in of itself.
Your previous posts as well as this one are incorrect.
17:11 post
Cash raised in a bond sale does not have to be spent on stimulus. It's perfectly acceptable to do stimulus using only the money people effectively pay you through the negative interest rate. If this is done, there is absolutely no need to refinance a bond after is reaches maturity. nor is there any reason to tax the citizenry as the bond literally pays for itself and more.
17:45 post
Also, as previously stated, if you don't spend the cash raised, you can still run expansionary fiscal policy from the collected interest alone in the case of negative interest rates.
I don't see how any of the points you are bringing up aren't already accounted for when calculating the deficit.
If government spends money that is borrowed at negative real interest rates, then that adds to the deficit only because deficit is defined as government spending - tax revenue, and borrowing money doesn't directly increase tax revenue. But this is just semantics.
Deficits only matter to the extent that it makes total government debt worse. And as Acker points out, if government borrows money at negative real interest rates and spends the part that is the spread between the nominal interest rate and the inflation rate, then the total real government debt is unchanged, in this sense it is free money. Thus, money can be spent while leaving the government's debt burden unchanged.
Umm, no. There's no free money there. Do the maths.
The inflation doesn't give you cash to spend. When the debt comes due you would need to borrow the amount you spent in addition to rolling over the existing principal.
Haven't you flip-flopped on stimulus like a hundred times already? From stimulus can help, to stimulus is a waste of money, to all the stimulus money went to "special interests", to well targeted stimulus is good, to the deficit matters so doing stimulus to increase it is bad, to it's not good that Obamacare decreases the deficit, to doing another stimulus is bad even with negative real interest rates.
I can't keep track of your position on stimulus. It's more amorphous than Mitt Romney. And if not stimulus, then what is the correct policy response to a recession?
There's no reason why I can't argue that stimulus in general is helpful while arguing that a specific stimulus program isn't worth it or is going too far. I'm not sure why you consider that flip-flopping. I'm not making blanket statements about all stimulus in all times.
Stimulus in general is helpful, but the composition of the stimulus matters and there are practical limits to how much stimulus you can pump into the economy.
On August 07 2012 18:43 JonnyBNoHo wrote: Can you demonstrate how negative real interest rates muck up my statement? I'm not seeing it.
The problem with your stated identity?
It's a repeat of what's already been stated in posts 17:45 and 17:11. I think you already accepted that part.
The new part was the complication involving positive nominal rates and negative real rates. Which was a complication introduced by another poster a page ago, and a complication that's not all too difficult to address to still make money off of negative real rates (the money can't be held in of itself for 0% real rate of return due to the positive nominal yield, but investing it into a durable good or a basket of durable goods with an average of 0% real rate of return isn't all that difficult).
Which is irrelevant in the case of the stated identity (as a zero nominal interest rate bond with a negative real interest rate still falls within the "expansionary fiscal policy=stimulus=deficit spending identity" and contradicts it), but is still interesting to consider in of itself.
Your previous posts as well as this one are incorrect.
17:11 post
Cash raised in a bond sale does not have to be spent on stimulus. It's perfectly acceptable to do stimulus using only the money people effectively pay you through the negative interest rate. If this is done, there is absolutely no need to refinance a bond after is reaches maturity. nor is there any reason to tax the citizenry as the bond literally pays for itself and more.
17:45 post
Also, as previously stated, if you don't spend the cash raised, you can still run expansionary fiscal policy from the collected interest alone in the case of negative interest rates.
I don't see how any of the points you are bringing up aren't already accounted for when calculating the deficit.
If government spends money that is borrowed at negative real interest rates, then that adds to the deficit only because deficit is defined as government spending - tax revenue, and borrowing money doesn't directly increase tax revenue. But this is just semantics.
Deficits only matter to the extent that it makes total government debt worse. And as Acker points out, if government borrows money at negative real interest rates and spends the part that is the spread between the nominal interest rate and the inflation rate, then the total real government debt is unchanged, in this sense it is free money. Thus, money can be spent while leaving the government's debt burden unchanged.
Umm, no. There's no free money there. Do the maths.
The inflation doesn't give you cash to spend. When the debt comes due you would need to borrow the amount you spent in addition to rolling over the existing principal.
No, you do the math.
Suppose there are 2 time points, time 0 and 1, and the inflation rate is 10%. At time 0, you gave me $100 at a 5% interest rate. There's also a product that costs $20 at time 0, What would I do?
Here's what I would do: I'd use the $100 to buy 5 of the products at time 0. At time 1, because of the 10% inflation, the product would cost $22. Then I would sell the 5 products I bought, making $110. I'd return $105 to you, and pocket the remaining $5 for myself.
Negative real interest rate does equal free money.
Haven't you flip-flopped on stimulus like a hundred times already? From stimulus can help, to stimulus is a waste of money, to all the stimulus money went to "special interests", to well targeted stimulus is good, to the deficit matters so doing stimulus to increase it is bad, to it's not good that Obamacare decreases the deficit, to doing another stimulus is bad even with negative real interest rates.
I can't keep track of your position on stimulus. It's more amorphous than Mitt Romney. And if not stimulus, then what is the correct policy response to a recession?
There's no reason why I can't argue that stimulus in general is helpful while arguing that a specific stimulus program isn't worth it or is going too far. I'm not sure why you consider that flip-flopping. I'm not making blanket statements about all stimulus in all times.
Stimulus in general is helpful, but the composition of the stimulus matters and there are practical limits to how much stimulus you can pump into the economy.
That's a very generic and vague response. What specifically about the stimulus program made it bad? It's also not the standard Republican line, because if it were they would be proposing better stimulus, instead of demanding spending cuts to everything other than defense and giving tax cuts to the rich, as a Trojan horse for the anti-government agenda.
On August 08 2012 02:21 JonnyBNoHo wrote: Umm, no. There's no free money there. Do the maths.
The inflation doesn't give you cash to spend. When the debt comes due you would need to borrow the amount you spent in addition to rolling over the existing principal.
I really don't get what's so difficult about accepting that negative real interest rates means free money if only the money collected in "interest" is spent, with an additional step if nominal interest rates are positive instead of zero.
Mathematics does not have a liberal bias. Stop treating it as if it did.
On August 08 2012 02:21 JonnyBNoHo wrote: Umm, no. There's no free money there. Do the maths.
The inflation doesn't give you cash to spend. When the debt comes due you would need to borrow the amount you spent in addition to rolling over the existing principal.
I really don't get what's so difficult about accepting that negative real interest rates means free money if only the money collected in "interest" is spent, with an additional step if nominal interest rates are positive instead of zero.
Mathematics does not have a liberal bias. Stop treating it as if it did.
No, free money is a misleading term. Your logic will take you to very strange places if you play it out.
Basically where you're going is the US government should become a giant financial institution that churns debt into equity and cashes on the difference. That is a VERY dangerous game to play and certainly a risk that an institution responsible for public welfare has absolutely no business approaching.
If you want to argue that negative interest rates mean the investing public is begging the government to spend more, that would be one thing. But to act like this is a tappable source of free equity is not correct.
Basically, back in 2008, people used wikipedia edits to try to predict who was gonna be the VP pick.
In 2008, as The Washington Post wrote at the time, "just hours before [Sen. John] McCain declared his veep choice of Alaska Gov. Sarah Palin, her Wiki page saw a flurry of activity, with editors adding details about her approval rating and husband's employment. ... Palin's entry was updated at least 68 times, with at least an additional 54 changes made to her entry over the preceding five days."
Meanwhile, the Post said, "on Aug. 22, the day before the Obama campaign officially named [then-Sen. Joe] Biden as the veep pick, Biden's Wiki page garnered roughly 40 changes. Over the five days prior, users would make at least 111 other changes to his entry."
The obvious — in hindsight — implications of the Wiki activity: Aides were going into the entries to tune them up and clean out any material that was either embarrassing or erroneous.
So what's going on now with some of those said to be among the leading possibilities to be joining Mitt Romney on the Republican ticket?
— Ohio Sen. Rob Portman's Wiki page has been revised 16 times so far today, by someone called "River8009."
— Florida Sen. Marco Rubio's Wiki page has been revised nine times so far today and 11 times from Aug. 2-6.
— Former Minnesota Gov. Tim Pawlenty's Wiki page has been tweaked four times today.
— Wisconsin Rep. Paul Ryan's Wiki page has been edited once today, and 11 times from Aug. 2-6.
— Louisiana Gov. Bobby Jindal's Wiki page hasn't been edited today, but was revised eight times from Aug. 3-4.
— New Hampshire Sen. Kelly Ayotte's Wiki page has not been touched today. It was last revised on July 28.
— New Jersey Gov. Chris Christie's Wiki page hasn't been revised since July 24.
On August 08 2012 03:23 coverpunch wrote: No, free money is a misleading term. Your logic will take you to very strange places if you play it out.
Basically where you're going is the US government should become a giant financial institution that churns debt into equity and cashes on the difference. That is a VERY dangerous game to play and certainly a risk that an institution responsible for public welfare has absolutely no business approaching.
Nobody is saying that the US government should "become a giant financial institution that churns debt into equity"*. This is all a response to an identity posted two pages ago, and how it's misleading at best, false at worst.
*Seriously, where the hell did this come from? How does exploiting negative real rates to turn a profit reflect on a transformation of government into whatever the hell the quote means? Real interest rates are positive in normal times and attempts to turn a profit would normally fail, this only works when real interest rates are negative, and only under certain circumstances.
On August 07 2012 18:43 JonnyBNoHo wrote: Can you demonstrate how negative real interest rates muck up my statement? I'm not seeing it.
The problem with your stated identity?
It's a repeat of what's already been stated in posts 17:45 and 17:11. I think you already accepted that part.
The new part was the complication involving positive nominal rates and negative real rates. Which was a complication introduced by another poster a page ago, and a complication that's not all too difficult to address to still make money off of negative real rates (the money can't be held in of itself for 0% real rate of return due to the positive nominal yield, but investing it into a durable good or a basket of durable goods with an average of 0% real rate of return isn't all that difficult).
Which is irrelevant in the case of the stated identity (as a zero nominal interest rate bond with a negative real interest rate still falls within the "expansionary fiscal policy=stimulus=deficit spending identity" and contradicts it), but is still interesting to consider in of itself.
Your previous posts as well as this one are incorrect.
17:11 post
Cash raised in a bond sale does not have to be spent on stimulus. It's perfectly acceptable to do stimulus using only the money people effectively pay you through the negative interest rate. If this is done, there is absolutely no need to refinance a bond after is reaches maturity. nor is there any reason to tax the citizenry as the bond literally pays for itself and more.
17:45 post
Also, as previously stated, if you don't spend the cash raised, you can still run expansionary fiscal policy from the collected interest alone in the case of negative interest rates.
I don't see how any of the points you are bringing up aren't already accounted for when calculating the deficit.
If government spends money that is borrowed at negative real interest rates, then that adds to the deficit only because deficit is defined as government spending - tax revenue, and borrowing money doesn't directly increase tax revenue. But this is just semantics.
Deficits only matter to the extent that it makes total government debt worse. And as Acker points out, if government borrows money at negative real interest rates and spends the part that is the spread between the nominal interest rate and the inflation rate, then the total real government debt is unchanged, in this sense it is free money. Thus, money can be spent while leaving the government's debt burden unchanged.
Umm, no. There's no free money there. Do the maths.
The inflation doesn't give you cash to spend. When the debt comes due you would need to borrow the amount you spent in addition to rolling over the existing principal.
No, you do the math.
Suppose there are 2 time points, time 0 and 1, and the inflation rate is 10%. At time 0, you gave me $100 at a 5% interest rate. There's also a product that costs $20 at time 0, What would I do?
Here's what I would do: I'd use the $100 to buy 5 of the products at time 0. At time 1, because of the 10% inflation, the product would cost $22. Then I would sell the 5 products I bought, making $110. I'd return $105 to you, and pocket the remaining $5 for myself.
Negative real interest rate does equal free money.
That's making a leveraged bet on an asset price. You don't need negative interest rates to turn a profit doing that, though it makes it easier. If you want to be realistic about it you should consider transaction and holding costs as well as risk before you declare it 'free'.
Haven't you flip-flopped on stimulus like a hundred times already? From stimulus can help, to stimulus is a waste of money, to all the stimulus money went to "special interests", to well targeted stimulus is good, to the deficit matters so doing stimulus to increase it is bad, to it's not good that Obamacare decreases the deficit, to doing another stimulus is bad even with negative real interest rates.
I can't keep track of your position on stimulus. It's more amorphous than Mitt Romney. And if not stimulus, then what is the correct policy response to a recession?
There's no reason why I can't argue that stimulus in general is helpful while arguing that a specific stimulus program isn't worth it or is going too far. I'm not sure why you consider that flip-flopping. I'm not making blanket statements about all stimulus in all times.
Stimulus in general is helpful, but the composition of the stimulus matters and there are practical limits to how much stimulus you can pump into the economy.
That's a very generic and vague response. What specifically about the stimulus program made it bad? It's also not the standard Republican line, because if it were they would be proposing better stimulus, instead of demanding spending cuts to everything other than defense and giving tax cuts to the rich, as a Trojan horse for the anti-government agenda.
I really don't give a crap what the standard Republican line is. I'm giving MY opinions about policies. I'll re-post some of my criticisms of recent stimulus programs later on though, just for you.
On August 08 2012 02:21 JonnyBNoHo wrote: Umm, no. There's no free money there. Do the maths.
The inflation doesn't give you cash to spend. When the debt comes due you would need to borrow the amount you spent in addition to rolling over the existing principal.
I really don't get what's so difficult about accepting that negative real interest rates means free money if only the money collected in "interest" is spent, with an additional step if nominal interest rates are positive instead of zero.
Mathematics does not have a liberal bias. Stop treating it as if it did.
I'm not sure about your math. Please show me where I am wrong. I don't see how you can spend interest that only exists as an adjustment for inflation.
You borrow $100 at 0% for 1 year and inflation is 2%
You spend the $2 ... .
... But how? Where did that $2 come from?
If it came from the initial bond sale then in one year you will owe $100 in debt and only have $98 to repay it.
If you borrowed it you now have $102 in debt and in one year you will have only $100 to repay the debt.
EPT
