Does Spending=Income?

Discussion in 'Economics & Trade' started by Econ4Every1, Jun 9, 2017.

  1. Meta777

    Meta777 Moderator Staff Member

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    OK....now I know you're joking.

    Look....here is the definition of wealth:
    https://www.merriam-webster.com/dictionary/wealth

    By that definition, land is most certainly a form of wealth, as it can be valued, utilized, and or owned.
    https://en.wikipedia.org/wiki/Wealth#Wealth_in_the_form_of_land

    I do agree that land is not the only form of wealth. I also agree that land is not the only root of wealth.
    But your argument is a clear fallacy (it actually contains more than one).

    Gates got his wealth without the use of land you say, therefore land is not and does not create wealth???
    That's akin to saying that a person building a house out of bricks means houses can't be built with anything else.

    A silly notion really...and a form of hasty generalization: https://en.wikipedia.org/wiki/Faulty_generalization
    And as Econ pointed out, even the premise isn't strictly correct, since Gates without a doubt
    relied on things like food, space, materials etc. (which all come from land) whilst accumulating his fortune.

    -Meta
     
  2. james M

    james M Banned

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    of course he used land water roads etc but the source of his wealth was invention. buying land gets you no wealth unless it happens to appreciate. Great wealth is created when Republicans supply new inventions, not when they acquire land. Now you understand supply side economics.
     
  3. Meta777

    Meta777 Moderator Staff Member

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    Note that "wealth" and "wealthy" are two different things.
    Can you post your definition of each please? I think it will help.

    -Meta
     
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  4. Econ4Every1

    Econ4Every1 Well-Known Member

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    Let's go through this....

    Treasury creates and sells a $1 bond. Government -1 ($1) bond +$1, private sector +1 ($1) bond, -$1
    • Here the Treasury has just swapped one liability, the bond, for another liability, the dollar. Everything nets to zero.
    The Fed then "creates a dollar from thin air" and swaps it for the bond. The Fed is -$1 and +1 ($1) bond and the private sector is +$1 and -1 ($1) bond.
    • Again, the sum of this transaction nets to zero, all that's changed is who holds the dollars and who holds the bonds. Since bonds and dollars are effectively the same things in different forms, nothing has changed. The Fed cannot create the dollar without collateral, most of which is government bonds.
    However, when the government spends without the sale of a bond we call it "deficit spending". The Treasury can spend simply by marking up your account balance and recording the amount of this spending on a spreadsheet. You know this as the "debt".

    • The US Treasury pays your Federal Retirement check of $1. The government records -$1 on its balance sheet and you go +$1 in your bank account. Here the net is still zero, except here the -$1 is held outside the private sector on the government's balance sheet. This it is a negative to the government (deficit) but a positive to the private sector (surplus). It is the money the government records on its balance sheet that the non-government (the private+the foreign sector) records as surplus....

    Which is of course what my avatar is showing:
    [​IMG]
     
  5. james M

    james M Banned

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    absurd!!! wealthy people have wealth;
     
  6. Econ4Every1

    Econ4Every1 Well-Known Member

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    Wealthy is an accumulation of wealth. Wealth are things of real tangible and intrinsic value. Dollars are a form of wealth as long as they are a claim on things of real value, thus dollars are not wealth in themselves, their value is extrinsic.
     
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  7. Meta777

    Meta777 Moderator Staff Member

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    If China did not have access to any wealth prior to 1978, they all would have starved. Do you agree?

    -Meta
     
  8. Econ4Every1

    Econ4Every1 Well-Known Member

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    Has the US government ever accepted gold (not in the form of a legal tender coin) as payment of taxes?
     
  9. tharock220

    tharock220 Well-Known Member

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    Hehe. My buddy once argued for the gold standard by pulling a 20 out of his pocket and saying "what is this worth". When he said nothing a quickly grabbed it and told him he must not want it then.
     
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  10. Meta777

    Meta777 Moderator Staff Member

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    Huh...what about any of that was absurd?....well, whatever...
    I assume what you posted was your definition for "wealthy".
    Fair enough. So what then is your definition for "wealth"?

    -Meta
     
  11. Econ4Every1

    Econ4Every1 Well-Known Member

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    Of course, it matters what the origin is. If the origin were the Chinese government, their money may have value in the sense that there are people that might accept it in payment of goods/ services, but the Chinese government has no ability to tax me, thus I don't need Rebmini and the result is that the Chines government cannot compel me to do anything.

    The US government, however, has the power to tax me and that power to tax me compels me to earn dollars. What happens to people that don't pay taxes?

    No, it's not at all the same.

    The government cannot spend infinitely any more than you can fill up your bathtub infinitely. In order to keep a tub from overflowing (when the tap runs indefinitely) you need a drain and in the economy to keep the economy from overflowing (inflation) you need a drain (taxes).

    The trick, in a tub that has a faucet that's always on, if you want to fill it up (inflating the amount of water) without overflowing it (inflation) you have to tune the drain relative to the faucet.

    In the same way, the government needs to create enough money so that everyone can work, but not so much that inflation sets in.

    Taxes prevent inflation. They drive value into the currency as most people need money to pay taxes. The value is proportional to your desire to avoid the penalties that result from failure to pay taxes.
     
    Last edited: Jun 14, 2017
  12. Longshot

    Longshot Well-Known Member

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    No. The treasury's balance sheet acquired a liability (the bond it issued) and an asset (the cash it received).
    No. The fed isn't -$1. It is at $0. It created the dollar (+$1) and then gave the dollar to the purchaser of the bond (-$1) for a net of $0.
    No, the sum doesn't net to zero, because $1 has been added to the system.

    Also bonds and dollars aren't the same thing. A dollar is a dollar, and a bond is a promise to pay a dollar at some future time.
    The government doesn't have a balance sheet.
     

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