Trump's desire to reduce the deficit. Can someone explain to me how this is a good thing?

What matters is that through nothing more than bad planning, your nation spends billions of pounds on debt interest that it could be spending on other things.


The US government both creates dollars and competes for existing dollars. It knows a great many tricks for getting your resources.

The value of a currency is not normally measured by "a governments ability to raise taxes".
It is normally measured by the value that a person is willing to trade for it.

It is not an IOU redeemable by the creator. It is a trade good. Redeemable through trade.

 

Redefining what terms?

 

As the article I linked pointed out GDP. We can see the samething with unemployment stastics.

If you can't see that this third pillar [dollar], is just a middle man between nations and for "private" individuals to get wealthy then idk what to tell ya.

 

In the US and Britain, the nation is paying people for having the discipline to save. It rewards them with more money they earn as income. Why is this a problem?

No, the US government creates dollars. Anything that appears as "competition" for them is simply an acknowledgment that it can't keep adding dollars to the economy without taking some out.

In established economies, I agree 100%

v

I agree, I usually say the value of any currency is relative to what can be purchased with it. Implicit in that statement is the person's willingness and desire for the things that can be purchased with it.

It is an IOU as it was created from a debt, and despite your protestations, it is redeemable for repayment of that debt.

Imagine, if you will, the government creates $100 million dollars (and was now $100 million dollars in debt). Let's imagine that this is the first $100 million dollars in the economy. The value of the money, is it established by the prices that people charge the government when it creates the $100 million dollars or is it established by the taxes the government announces prior to spending that $100 million dollars?

The government has the ability to tax the people that receive the dollars to repay the debt the government incurred when it created the $100 million, correct? But if the government taxed back all $100 million, there'd be nothing left, right?

Thus each dollar in circulation was created as a debt and it's an IOU for the redemption of taxes that the government hasn't imposed so that the private sector has money in circulation to do business with.

Remember....

When a company issues a bond, it is borrowing. It is swapping something it can create for free (the bond) for something it cannot (currency).

When the government issues bonds, it is not borrowing.

It is swapping something it creates for free (a bond) for something it also creates for free (currency).

 

I don't really disagree with anything from my quotes in your post.

But they're not my quotes. =P

 

That was weird....Sorry bout that. Not sure how I got you and Baff mixed up when I was copy and pasting....lol

That's alright though. I left you a long one

FIXED!

 

I'm pretty sure you can cite not one single economist that says deficits are a good thing, and that cutting them harms the economy. My education is perhaps a bit dusty, compared to that of some posters. But the topic of this thread is so dumb, we are all dumber for having read it.

 

The question you're asking, with all due respect, betrays your ignorance on the topic. We aren't saying that deficits are good or bad, we're saying they aren't always bad.

It's like saying fire is bad. It certainly can be under the right circumstances, but it's an invaluable tool (if you will). Same goes for deficits. They are a tool of fiscal policiy that has been and should continue to be deployed under the right circumstances.

If an economist is "An expert in economics" then I offer the following economists who recognize what I've just said....

These 5 are largely responsible for reviving modern Chartalism.

Warren Mosler - American economist, broker and engineer
L. Randall Wray - Acidemic, economist
Stephanie Kelton - Academic, Economist
Bill Mitchell - Academic, Economist
Pavlina R. Tcherneva- Academic, Economist
Bill Mitchell - Academic, Economist
Basil Moore - Academic, Economist
Steve Keen - Academic, Economist

Some well-known influences on modern Chartalism are: (All well regarded "professional" economists)
Alfred Mitchell-Innes
Irving Fisher
John Maynard Keynes
Walter Bagehot
James K. Galbraith
Scott Fullwiler
Hyman Minsky

And former Federal Reserves Chairmen who understood Modern money
Marriner S Eccles

 

You're describing scrip, not money. It is being used as a medium of exchange, but it isn't the most common medium of exchange in society. That would be money.

Also, you seem to have implied that if there were no government that there could be no money. This is obviously false, as money predates and was used by many societies in which the centralized state did not issue national currencies.

 

L. Randle Wray, one of the foremost modern experts on modern money, literally wrote the book on the history of money.

The Alternative History of Money <--Clicky

 

If you're claiming that money can't exist unless it was issued by fiat by a centralized state, then you're talking nonsense and your assertion can be easily disproved.

 

Before I answer, I guess I need to have you define money.

What the heck..

I mean, I could take out a paper and pen and write and sign a legally binding document declaring that the holder of the IOU can redeem it for some quantity of payment in something of value. It could be my labor, it could be something of real value, it could be a commodity....Whatever.

People could use my IOU as money.

So I'm going to go out on a limb and say that neither Woolley or I believe that money creation is limited to governments.

However, government created money has certain benefits (and drawbacks) that other types of money do not.

 

Money is defined as the most common medium of exchange that is used as a unit of account in any particular society.

Okay, then we agree. Money can exist independent of any government. That was my point.

 

Deficits are obviously a useful way of obtaining credit. They're just like credit cards with almost infinite limits. Problem is when the debts simply become overwhelming.

Another problem is that socialist systems use the option to shamelessly bribe their electorates. Since most people are dumb they happily lap up the offer of free this and that. And eventually the whole house of cards collapses.

 

Impressive figures:

US debt = $20,000,000,000,000.

Citizens = 320,000,000.

Taxpayers = 140,000,000.

Debt per citizen = $62,000

Debt per taxpayer = $140,000

So if every taxpayer in the USA earned a salary moreorless equivalent to the Prime Minister of the UK, and contributed their full salary for one whole year, the debt would be settled.

Or to put it another way: you folks are truly ****ed.

 

When a company issues a bond, it is borrowing. It is swapping something it can create for free (the bond) for something it cannot (currency).

When the government issues bonds, it is not borrowing.

It is swapping something it creates for free (a bond) for something it also creates for free (currency).

 

An interesting question that should be referred to Ronald Reagan an George w Bush whose tax cuts without spending cuts are largely responsible for that debt

Donald trumps is promoting the same GOP idea that was tried by Reagan and bush.... cut taxes now and pay for it via fantasized future economic growth

 

The part I highlighted above is the reason you are having such a hard time understanding.

It's impossible for the US government to have no debt and a surplus of its own currency.

If anyone thinks it's possible, please elaborate and I'll explain what you are obviously missing.

 

You seem to know what you're talking about. I can't judge as my knowledge here is superficial. I know what it's like to know a lot about something and have idiots who know nothing tell you you're wrong - I know a lot about casino gambling and run into this often.

Your whole point seems to be that governments simply print infinite amounts of money. I can't see that. Why tax people if you can just print it? Why have a national bank? You mentioned I think that the gold standard, which I believe is the backing up of all cash with gold assets, no longer exists. I won't dispute that, but I can't follow your argument, which you seem to be the only one making it and which doesn't gel with many expert commentators who talk about the value of reducing debt etc.

What are your qualifications, or on what basis do you claim expertise? On every occasion I talk to anyone about casino gambling I'm invariably confronted by rampant ignorance masquerading as expertise, so if that's the case here you have my sympathies. As things stand I'm not persuaded.

 

The gold standard no longer exists. We have fiat money.

Essentially they are free to print more now. Which means they can try and cook the books.
It's a useful tool in money manipulation.

But's that all it is. An accountancy trick. No new resources are being created. That which money is traded for.
The number of apples in the cart remains the same, no matter what denomination you use to barter for them.

His posts are half truths. Propaganda to support a political ideology.
Leftonomics. Not economics.

An attempt to manipulate human behaviour and not an attempt to describe it.
The fundamental error is that money is being created anywhere other than the federal mint.
At that point he will give you some bullshit about how banks create money. But they don't. He just wishes they do, because if money is not real, then it's OK to borrow and steal and deficits don't matter etc.

But money is real. Sorry.

 

I hope you don't mind I reordered your questions as I felt I could knock out the first and last paragraphs together.

Thanks, I do enjoy when people talk to me, not at me.....Everything I know about the unknowns of gambling (things beyond the obvious) you could fit in the tip of a pin...lol. I yield sir to your expertise in this area

What are my creds?

Are you asking me if I am trained formally? The answer is no, though in the past several years I've taken several banking courses and I own a few textbooks. Otherwise, I became interested in economics in 2003, though I did not become really passionate about the subjected until after the 2008 crash. At the time I was discussing politics and trying to understand, like so many other people, why I had lost 40% of my retirement in the span of about two years. That's when I realized that, without a firm understanding of how our money system works, debating politics was useless. I listened to people on the right blame leftist policies or actions for the crash and I heard people on the right blame right wing for the same. Frankly, sometimes claims made by the left made sense and others claims by the right made sense. That's when I realized I needed to really understand. If you want a better understanding of the sources of my learning, I'd be happy to share, but listing all if read and the courses I've taken seems a bit immodest. I will just say that understanding economics is a passion I have and for the last 5-6 years I've read or studied almost every day.

Today, I don't talk much about politics. People are, as you say (paraphrasing) largely ignorant of the topic of economics. Today, economics is my politics. I believe that if more people understood how the system they have actually works they could begin to wrap their political ideologies around that knowledge instead of trying to wrap economics around their political ideologies. The post above mine should demonstrate how difficult that is.

Basically, anything that's worth doing takes the money and if you don't understand how the money system works you're going to advocate for something and then someone that asks you, "how are we ging to pay for X?" and you aren't going to be able to answer without being countered.

So if I have an agenda, it's simply to help other people understand our economy.

With respect to the claim that I am politically motivated. Take notice that I'm describing how the economy works, I'm not prescribing policy. That's not to say I don't advocate policy, I just talk about that with people that have a firm grasp on what the real limitations of our economy are.

Yes, the government can create as much money as it wants. But I've taken great pains to point out that just because I believe that, doesn't mean that I think that the government should set about creating all the money that it wants. The only reason I point that out (the government is not limited in its spending) is that people talk as if US dollars are somehow the limitation, the constraint on government spending. The idea that the government has to collect money from citizens in order to have it is if you think about it, quite ridiculous.

The government is quite constrained in its spending, that constraint is inflation. However, just as a little radiation can be good for a cancer patient and a lot can be bad, a little bit of inflation can be good for the economy.

First, let me say, you seem genuinely interested in learning and for that I applaud you. That's not to say that I'm the only one here who understands the economy. There are a few people n this thread, even some that vehemently disagree with me, who admit to varying degrees, that what I'm saying is correct and that I've recognized in return, their knowlage on the subject. We just disagree on the conclusions. Most of those people would be some form of Libertarian who disagree with me on more philosophical grounds. They value freedom over everything else and believe that the markets should be left to shape themselves. I believe that if the markets are left to their own designs, that as a country our nation will fail to live up to it's potential and we will lose our influence in the world, perhaps even worse. But that is a conversation best had once you have a firm grasp on the economy. BTW, I am pretty lonely in my position, but there is at least one other poster here who agrees with me.

You asked two questions, Why have a national bank and you want to understand my position with respect to the national debt and why, today, I don't believe that reducing it is economically prudent.

Wow...In order to understand the national bank you really have to understand the history of banking. I'm going to explain in as few words as possible (something I'm terrible at).

Let's imagine there are 10 banks, each independently owned and operated, but they all agree to create the same money (this was known as scrip). If you think about it, people are more likely to accept money as people in wider areas accept that money. Now since each bank is independent, if someone carries a check for $10 from bank A to bank B (assuming they are each part of the 10 bank system) then bank B redeems the check for $10 in scrip and is now owed $10 by bank A. Bank A. In order to repay Bank B bank A would open an account for bank B and deposit the $10 in it that bank B could then withdraw.

Each bank in the system would have to have an account at all the other banks. At the end of each day when all the deposits and withdrawals were tallied each bank would settle up by depositing money, or getting deposits from the other banks.

This is where regional banks began. Instead of every bank having an account for every other bank, all the banks just had an account at a regional bank. When banks settled up they just moved money between the accounts (called settlement accounts) at the regional bank. This is where the concept of reserve funds began. The regional bank might insist that each private bank keep a certain percentage of it's funds in the regional bank to ensure proper settlements. This didn't always happen and as regional systems grew the risk of a single bank creating a crisis in the system increased.

The term reserves is misleading because the average person believes the money is held at the local bank in case there is a run on the bank. However, this is false. The reserves are held at the regional bank (or today the Fed) to ensure that one bank can pay another. This money should be called "settlement funds" because that is all the are.

So If I write a $1 million dollar check and deposit it in another bank, the funds are just moved from one account at the regional bank to another account at the regional bank.

Now take the Federal Reserve. Just blow up this concept to cover the entire nation. The Federal Reserve unites the nation's banks in a single system making commerce easy. Back in the days of script where multiple monies exist, if you wanted to buy something from a place that didn't accept your script, you would either have to take multiple steps to trade scrip or trade into gold, move your gold, sell your gold in the script that the seller takes. Can you see how cumbersome that is? That was one of the big reasons for Europe uniting under a single currency. To make trade between the nations of Europe less costly. And if you think about it, the costs are fees, they don't really add anything to the nation's productivity. I won't get into it here, but remember Europe and its system is still fundamentally different than that of the US. So take care in making comparisons.

There is a lot more, but this is already way too long.....

Let me leave this here and I'll create a new post to answer you last question.....

 

Fair enough with inflation etc. We had quantitative easing over here, which is a form of money printing by the government, and the downsides of inflation and whatnot were soundly flagged up by the commentators, economists and otherwise.

Your challenge was "Trump's desire to reduce the deficit. Can someone explain to me how this is a good thing?", under the premise (as I understand it) that the government doesn't need to reduce it, because it has free reign to print its obligations to its lenders. But you acknowledge that it's a handle-with-care option. The US government pays 400 billion in interest a year. The fact that they can print those interest obligations, and so not worry about the deficit / debt spiralling, seems a pathway to chaos.

Yes, zero sum game between banks, ease of lending etc. In asking about having banks I was more wondering why you would even bother having a financial system at all if you can just print off your obligations. 400 billion owed? Fine, just add 400,000,000,000 to the balance sheet. A twelve-digit typing spree is all you need.

I've almost certainly over simplified what you're suggesting in summarising it as just money printing to avoid the unnecessary worry about rampant interest payments on the debt, but a solid argument probably should be simplifiable to a large extent so that quasi-intelligent non-experts can understand it, so if you can do so it would be handy. I also note that you said "I believe" somewhere above, which suggests your stance is more of an opinion rather than indisputably factual.

 

This whole string is a BS/Mistaken Premise.
The OP article ONLY talks about ACA/Obamacare's effect on the Deficit... which is relatively Tiny.
The Trump Tax Plan would Dramatically INCREASE the Deficit!
WTF!
ACA is already mostly Paid for by Taxes (Cap Gains over 250K, Med devices, etc) so it's effect relatively small.

Trump's Tax cuts (personal/Corporate) are NOT Paid for by spending Cuts.
In fact, he wants spending Increases, in the Wall, Military, Infrastructure, etc.
His Deficit Exploding Plan will be DOA for that reason, tho we need a corporate cut.

Getting rid of ACA only cuts the Individual Income Tax of the Rich. (3.8% over 250k Cap Gains)
Always the main GOP objective.
`

 

What you've asked me to explain requires that I share my underlying knowledge of how I came to my conclusions, if you are to really understand (rather than just believe me).

I'm happy to share what I know and encourage you to challenge and ask questions (as you have done).

I don't have time right now, getting ready to take my kayak for a spin, but when I have time, I will respond to all of your questions in detail.

BTW, you said "we have quantitative easing here", since several nations, including the US engaged in QE, may I ask, where "here" is? That way I can try to contextualize my answer best I can or explain where I might be ignorant if you aren't from the US.

Now, before I have your answer, I'll add that if you are from the UK, Australia, Japan or Canda, there are superficial differences, but are mostly the same.

-Cheers

 

Proud Englander.

Obviously I can't dictate how you say what you say, but if you can be as to the point and succinct as possible it'd be handy. That isn't lackadaisicalness, just a desire to have the best chance of following the line of thought. You've probably already repeated yourself several times in this thread, which is nobody's fault (neither writer nor reader) but can be tedious for everyone if you're typing and they're reading passages which might be summarisable somehow. Idiot-proof, if you like.