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

It's sort of funny in this era of hyper-partisanship when people say that Republicans and Democrats don't agree on anything, I chuckle....



The OP wasn't a debate about what the effect of the ACA, or Trumps budget. It was a question about the one thing people all seem to agree on, that deficits are bad and in the video we hear talk, on both sides about the poooooor children and how we are selling them out.

This thread is my attempt to challenge that notion.

Read up and come back and tell me what you think

 

Your request is understandable, but there are several issues when trying to keep things short and to the point. First, I have no idea what the reader knows until we engage in conversation. Second, there are a number of things that people take for granted as true, thus a good deal of time is spent challenging assumptions before we can ever really get to the conversation I'm trying to have.

Helping people unlearn is part of the lesson. The example here is that lower government debt is always a good thing. I'm not saying that debt is good or bad, simply that it depends on prevailing economic conditions and then trying to share with the reader what those conditions are.

From there it's understanding the difference between how the system works (description) and what we ought to do in light of that understanding (political choices, prescriptions).

If you think the moon is made of Blu Cheese, your choices about traveling there might be a lot different once you realize the reality. I think this is the case today when it comes to politics. People believe that the Federal government takes money from them and gives that same money to others and on that basis they object. That's not how it works. Might some people change their minds about welfare if they understood the real purpose of taxation? Most Libertarians, the answer is no, but many (not all) Conservatives I know personally have been affected in their thinking once I've had a chance to explain. That doesn't mean they agree with me on my social political choices, just that they think differntly with respect to their own ideology in light of information I've shared.

Unfortunately, there is nothing "short and to the point" when trying to explain my point-of-view. Think about it like driving a car (stick shift).

You have to know how to steer, you must know how to shift, you have to know the rules of the road, you must know how to operate the gas and the brake. Taken individually, none of that is difficult, but trying to understand it all, in real time, that's where it get's difficult. Everything depends on other things and if you take them out of the larger context, it's easy to get confused or draw incorrect conclusions.

Learning the individual aspects of economics is reasonably easy, the hardest part is seeing it all, as it is (not as you might want it to be) and putting that information together in real time.

I try to back up what I say with real statistics from sites that most people agree are reputable and share facts and let people decide for themselves.

 

Then You [intentionally] Mistitled the string because:

1. If it's NOT about Trump/ACA, then you'd have to put this string on General Fiscal/deficit policy in "Economics", NOT "Latest News."
It's Economic Theory, but you just Admittedly abused 'Trump/ACA' to get it in the more read "Latest News."

2. Trump doesn't really care about the deficit. He cares about cutting taxes and 'growing the economy' to eventually fill it in.
aka "Supply Side", aka "Trickle down".

3. Finally, according to your theory, we could just eliminate all Federal taxes and just print money. Great!

4. All games now over.​

`

 

1) I haven't offered a "theory" of anything. I've simply tried to to tell you how the system we have, right now, acctually works.

2)Now I know you're trolling, because, not only have I never said that, but I've said the exact opposite.

Suggest you go back and re-read what I've written. Copy and paste the part where you think I said that, and I'll translate what I really said for you.

- Cheers

 

1. You did NOT answer my #1 Nor #2... nor even quote it.
You got caught/Outed trying to turn your Economic theory into 'Latest News'

2. You absolutely did proffer a theory that Deficits weren't bad.
You Lose again.

 

Because it has nothing to do with the point of the post which was to talk about deficits in the context of recent events. If you think the thread should be moved, then petition to have it move... Your call.

Ok, sure, in a looser sense of the word, I've offered a theory that deficits aren't always bad, that the need for deficit/ surplus depends on prevailing economic conditions and then made an argument which, if I recall, you've never directly addressed. Instead, you've chosen to focus on the ACA

I wouldn't use "theory" this way as it really turns every "opinion" into a "theory", but whatever, again, your call.

 

I promised to answer your questions with respect to deficits/ debt, but before I do, I want to address this question of belief....

There is a difference between justified and unjustified belief. For example, I could check the weather radar app on my phone and see storm clouds coming and say, I believe it's going to rain (that belief is justified), but if I schedule my outdoor wedding one year from today and say "don't worry honey I believe it won't rain on our wedding day", that belief is unjustified.

So, I would claim justified belief in my explanations based on evidence, rather than belief based on faith or sheer opinion...Hope that clears that up.

Moving on...

Now, let's talk about debt/ deficits. First, let me address the issue of interest paid on debt. Let me start by asking a question here and then I will respond to your answer with my thoughts.

Do you believe that the government paying interest on its debt is bad?

As far as deficits....

In order to understand this, we have to imagine an isolated example. Let's imagine a small island nation that declares itself a nation state and sets about creating its own currency.

It creates the equivalent of a "Treasury" and a "Central Bank" and all the other financial infrastructure so that it roughly resembles that of the US or UK in all the ways that matter. The newly formed government now needs to do the things that governments do, like create buildings and infrastructure needed to govern as well as provide for the nation's defense.

If the system created is a fiat system that works like that of the US or the UK, if the money hasn't been created yet, obviously the government can't tax in order to have it's own money because the people don't have money yet (this is the first bit of evidence to the fact that governments never need to tax in order to have its own money).

The government then announces that it will create its own sovereign currency and call it "dollars" (sorry, us Yanks can resist). The government then creates dollars and decides to spend it's newly created dollars and purchase real resources from the people. It does this by simply marking up the accounts of the people it owes money. The distinction here is that the government doesn't create physical dollars and deposit them into some account, or even digital dollars and drop them in an account and then spend them. No, if the government owed you money. If you had $0 in your account, the government would simply markup that account by whatever it owed you and at the same time make a record of that creation by marking down its own account on a spreadsheet by the same amount (debt).


If the new government minted $1 (let's keep it really simple here) and spent that dollar into circulation by purchasing something....How would everyone account for the transaction?

The government would be -$1 and the person that earn that dollar would be +$1. The gov has a deficit of -$1, and debt of $1 and if I earned that dollar, I'd have a surplus of +$1 and a credit of $1.

Where did the dollar come from? Nowhere the gov just created it. If it came from nowhere is the government in debt? If you look at the gov's books they are -$1, who do they owe that dollar too? No one. The government created it from nothing. If the gov repaid it, it would return to nothing. We can see this through a simple equation. $1+(-$1)=0. How would it get the dollar it created back from me? It would tax it. If it takes back my dollar (the only dollar in existence at this point) the private sector would have $0 and the government would use that positive dollar to release its debt. Everyone would be back to zero.

The real economy adds another layer of complexity that makes seeing this simple chain of logic nearly impossible but for those that are trained to understand. In the real world, this is aggravated by the fact that the economy wasn't always a fiat economy and didn't always operate under the same set of rules or constraints. The fiat system is very, very close to the systems that came before it on paper. This wasn't an accident, it had to be close enough to accommodate the changeover from gold backed to pure fiat (in n era when computers were in their infancy). Politicians at the time were extremely concerned that fiat might create the temptation for gov to spend without limits, so treasury sales were mandatory. I'll explain treasuries shortly, In this context,

So I wrote a whole lot more in explanation of how bonds remove liquidty by creating savings, but it was too long. I'll leave this portion here and wait for specific questions.

I think you see the light, but you can't make sense of it....

If you think that deficits are good or bad you can't see the forest for the trees. You don't understand the real constraints on the US economy. It just so happens in this economy that cutting deficits mostly affect the middle class and has a deleterious affect on the economy as a whole.

It's a zero sum between the entire private sector economy, but it's not zero sum between the public and private sector.

The important thing to understand is that most of the money in circulation is created via private sector bank loans. The private sector isn't limited by scarcity, but cost. That is, there is no finite pool of money which the private sector haggles over. There is an indefinite supply that is attached to a much smaller pool of money created by the government called reserves. Banks must hold reserves and the Fed manipulates reserves via open market operations.

Thus, money isn't limited by scarcity, but cost. The Fed drives the cost of money up as the availability of real resources and labor go down as a way to prevent inflation. In this way our economy is highly elastic, responding to changes in that ability of the private sector to meet demand.

However, the Fed cannot spend into the economy it can only lend. By contrast, the US government (Congress) can spend into the economy so that people earn money rather than borrow it. When the government cuts spending it incentivizes borrowing while simultaneously cutting incomes.....Can you see the problem? For example, the US government is talking about cutting $80 billion dollars a year for 10 years in Medicaid spending. Think of all the people that provide services that money pays for that will lose their jobs. $80 billion is 1.6 million $50k a year salaries.

When resources are limited costs rise, if the government spends in a way to ensure that resources and labor are available through targeted spending

You want this summed up in as few words as possible?

Basically that given excess unemployment, the government/ central bank machine should just create more money and spend it. And conversely, given excess inflation, the government should do the opposite, that is rein in money (e.g. via increased tax) and “unprint” or extinguish money.

Government borrowing is largely a waste of time. That is, the traditional Keynesian policy of having the government borrow and spend more in a recession is defective because of the zero-sum problem. So in a recession, governments should simply spend more – and forget about borrowing because, as I said, the US government does not "borrow" in any meaningful sense.

Now the knee jerk reaction of 99% of the population to the money creation idea is entirely predictable: “inflation”.

However, the fact of creating new money does not, repeat not, cause inflation. For example, if someone prints a million tons of $100 bills and hides them down a disused mine shaft, there’d be no inflation. It’s only when that money is SPENT, that there is an effect, and the effect is to raise demand, which is exactly what is needed in a recession (as long as the increase in demand is not excessive).

As regards inflation, employers do not raise prices unless they find demand for their products EXCEEDS their ability to supply (which can be a positive thing if unemployment is high as employers will increase hiring to meet new levels of demand). Thus, if an economy has spare capacity, particularly excess unemployment, then employers CAN meet the extra demand. Thus little inflation is caused by a “print money and spends it” policy in a recession, as long as the amount printed or created is not excessive.

I'm going to leave this here as it's already longer than I wanted. If you have questions or you want to challenge my assertions, please be specific and I'll do my best to answer.

-Cheers!

 

My theory is that President Donald J. Trump wishes to
boost the USA economy by improving Federal Reserve policy / lowering interest rates.........
His desire to do this goes back nearly thirty years.

https://en.wikipedia.org/wiki/Donald_Trump

Obviously..... although he is well up there in the one percenter class....
back in 1990 Mr. Donald Trump had no say whatsoever in the Federal Reserve
upping interest rates so that even large developers were paying such exorbitant rates.

One possible positive side effect to what he has in mind..... combined with the sheer
volume of two to 4.3 Trillion US Petro-Dollars that could hit the market soon.... is that
his policies could result in a boom in real estate value in the areas from which he got
most of his political support.



http://www.politicalforum.com/index...-fed-policy-pay-off-usa-national-debt.489825/

Could a real estate boom plus better Fed policy pay off USA national debt?

 

One part of the economic boom was a massive increase in productivity by workers partly due
to a huge improvement in technology.

Another reason why the USA and Canadian economy boomed from 1945 - 1965, (actually 1974 here,) was that interest rates
were kept low partly due to an exceptionally insightful central banking policy here in Canada that pressured
the Federal Reserve to compete with our Canadian model.

www.BankingSystemFlaws.blogspot.ca/

Three Canadian economists explained this in an article that you will enjoy if you haven't already seen it.

http://www.michaeljournal.org/artic...ry-debt-free-say-three-economists?/appenB.htm

 

I "invested" in my own bricks... as in. I took my savings out and payed off my mortgage. Where I ones paid 550, I now pay 195. A smaller debt is totally worth it in the long run. In the short term, it was totally worth to buy the property and have a debt. Same goes for big governments.

Look at Greece. They borrowed a lot. They borrowed that much, that they became a liability. Their rent went up because of that. Hence they are as good as bankrupt. You do not want to go there.

 

Is it correct to live over its circumstances ... speak to spend more money as income is?
In the exceptional and some case, yes, but if this becomes a long-term situation and one depends on the good will of the creditors, then it becomes problematic.

How many of those present actually know that China is the largest creditor in the US?
The US owe China 1,150,000,000,000.00 USD! I think times, financially, but China has in a way the USA somehow at the balls, isn't it?

 

Money is not real. Sorry

 

Anti trumpsters don't need jobs

All they need is the welfare state giving them money

 

Yup, deficit is good if it is being spent on you.
Otherwise, bad.

 

Unless you own a store where deficits spent on other people have greater means to buy goods and services from you.

 

You can't cut spending and grow the economy. It's an accounting fact.

Less spending means less growth by definition.

 

It matters not what Trump says he wants or intends to do. He no longer has credibility, allies, or any chance of passing anything even if he somehow gains the intellect required to understand or craft legislation. Trump is a duck with no wings at all.

 

For one, not allowing the debt to increase as much is better for debt servicing. Right now with the incredibly low interest rates it is only about less than 1/2 trillion a year but if the interest rate increases that can jump to 1 trillion a year pretty quickly.

 

Is it debt reduction or regulation elimination that results in recession, or a combination of both?

 

No, recessions are usually caused by the collapse of equity bubbles, like the overheated housing market did. Right now the whole world has binged on debt and the next bubble is the debt bubble. At some point there will be none left to borrow.

 

So what if it does increase to $1 trillion? I know that sounds snarky. It's not. Genuinely, what do you see as a problem with rising interest paid on the debt?

 

You can't look at it like that because the system has more variables.

If after a day of fun for a bunch of kids in a pool you noted that the water level was 6" lower than it was at the start of the day and I said, is it lack of filling or evaporation that leads to a reduction of the water level?

You'd rightly remind me that the kids splashed it out.

Therefore the amount you put back is determined by more than evaporation. All variables have to be considered to answer questions like that.

In the economy, there are inputs, Government spending, exports, and investment and there are outputs like taxes, imports, and savings.

Only after looking at ALL the variables can you decide the effect of any single variable on the economy as a whole.

Having said that in the economy we're in debt reduction, is by definition accomplished only be a decrease in spending and/ or increased taxes. Both are outputs. But remove money from the economy. The government spends money into the private sector. It's not possible to increase taxes or decrease spending and grow. That's like saying, "to fill the pool, you must empty it!".

That sounds like some nutty new age crap.

Regulation is something else entirely. Regulation is about reducing future costs by making changes, spending money, or making sacrifices today. The only regulations that should be eliminated are those that fail to accomplish the goal they set for themselves (assuming the goal is worthwhile in the first place).

Of course, I'm only talking about regulations that have reasonably easy to determine long-term impacts. Don't dump sewage in the river, it will pollute it.

Regulations on how people use ladders or the wattage of your light bulbs are a little harder to see the benefit.

Regulations also cover social impacts which are a trade of financial cost for some other socially desired outcome. Saving wildlife, the environment ect. These kinds of questions are largely political ones and are viewed mostly as costs.

Though I concede it is possible to place too high a value on social desires, that's an entirely new can of worms that has many, many levels to it.

Even here I've barely scratched the surface (especially with respect to regulations). You shouldn't have a hard time poking little holes in some of what I've said because if I tried to close all those holes I'd have to write something longer than most are willing to read.

You are welcome to challenge me. I love a good conversation.

-Cheers

 

Money better spent on other things. Would make debt service about 1/4 of the budget.

 

Thanks for the reply....

Few thoughts.

First, money paid as interest on the debt. About 1/3 of the interest earned goes to repay the debt as 1/3 of the debt is interest the government pays to itself thanks to bizarre games of political semantics Congress plays with its voters. Thus, debt service would be reduced proportionally.

Another 1/3 of the debt is earned by interests in the private sector. I hold about 5% of my retirement in bonds and when the stock market cools I'll retreat back to them in a greater percentage. So interest paid on the debt will end up as my income which I will spend. My spending will increase GDP relative to the amount owed on the debt, further shrinking the assumption that 1/4 of the budget will be spent on debt service. In other words, interest paid is earned as income by people, organizations, states, companies and other groups in the private sector. Those earnings contribute to spending and ultimately GDP. When predictions are made about future debt service, they don't take that into account.

Lastly, 1/3 of the debt is payable to foreign savers who desire to hold the dollar. Their desire to hold the dollar is in some proportion to their willingness to supply goods and services to the US public at lower cost and greater quantity than the US public could supply to itself. A benefit few people think about, never mind fully understand.

 

I do not see any evidence that Republicans in general or prompt in particular are interested and balancing the budget, except as a rhetorical cudgel...