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

Discussion in 'Latest US & World News' started by Econ4Every1, Mar 14, 2017.

  1. WAN

    WAN Well-Known Member Past Donor

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    Today the State Department has officially stopped all Russian people from travelling to the US. Ominous isn't it? Maybe we should start taking our heads out of the sand, and start looking around to see what's being done in our name... as well as what the future holds.

    The reason for this is that Russia kicked out diplomats (CIA Agents), so as to equalize Washington's diplomatic staff to the same amount of personnel as the Russians have in the US. This was done in response by Russia to the theft of Russian property in the US by Obama, which Trump refused to return without getting some favors in return. Extortion anyone? Seems nothing is beneath us now?

    Here are a few excerpts from an excellent article in the Duran:

    ****
    Above the half-witted mainstream media’s shrill noise about Charlottesville’s George Soros funded, statue-destroying, history-erasing, tattooed LGBT left-wing anarchists, we can hear something far more frightening. We hear the gargantuan growling curses of cannibal giants—the morally lobotomized military industrial complex—hiding in the darkness, scraping swords against stones and cracking knuckles, as they prepare to clash; and in the process of their reckless grappling, crush civilization and crumble landscapes. The question is what will trigger their fight?


    The U.S. justification for this action, so we’re told, is because the Russian government had previously ordered U.S. State Department staff (CIA agents) to leave Russia in order to create a more equal number of Russians and Americans working in each others’ embassies. Of course, what is conveniently ignored is that in December 2016 President Obama, in violation of international law, seized the Russian Government’s summer house and property in the Washington DC metro area, and Trump has continued the crime by refusing to return the Russian property without getting some kind of “benefit” in return. Extortion anyone?

    ****
    The supreme law of the land is the Constitution, and it is clear: no federal or state law, statute, code, or policy can exist that violates or undermines any part of the Constitution. Anything that does, is unlawful and has no authority over citizens. The reason for America’s obscenely immoral Congress is because they have abandoned and hated the idea of truth animating all government laws and actions.

    Let us always remember that truth is the union between a people and their government. Truth is the life force behind all law, and the U.S. Constitution; it is the substance of contracts; it is the light guiding man’s righteous claim and defense of his inalienable rights; it is the spirit of a responsible and benevolent self-government.


    Truth is the soul of justice, the shape of love, and the sound of peace. But sadly the corruption of man, his lusts, and selfish pride reject this principle in exchange for the shifting sands of pleasure and popular opinion.

    ****
    By ignoring truth when making law, Congress destroys both. Without truth, there is no semblance of government authority, there is only the tyranny of DEEP STATE bureaucrats who channel fear to continue their power.
     
  2. AFM

    AFM Well-Known Member Past Donor

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    This is quite simple to understand. Excessive debt results in excessive interest payments on that debt. What would the interest payment be at 5% interest rate on ~ $20T per year ?? Who pays that interest ?? How does that annual interest payment compare with the rest of gov expenditures ?? The preceding has nothing to do with productivity.
     
    Last edited: Aug 23, 2017
  3. upside222

    upside222 Well-Known Member Past Donor

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    You are making light of an additional $1.5T in national debt? Why am I not surprised?

    What happens when other countries decide not to buy our Treasuries? You mean like those countries that now deal in the Chinese yuan reserve currency?

    You are mixing debt and currency together. They are *not* the same.
     
  4. Giftedone

    Giftedone Well-Known Member Past Donor

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    First - Debt and deficit are related but they are not the same. For example, decreasing deficits does not mean that the debt will be decreased. You interchanging these terms as if they are directly interchangeable ... and they are not.

    Second - Zimbabwe ? Seriously talk about false dichotomy.

    There is a reason why red lights go off at the IMF when interest payments on debt reaches 30% of income. This means the ship is taking on water faster than it can be bailed out such that the ship will sink if not corrected.

    We reached nearly this level during Clinton's term .. which is why both sides came together and reduced the deficit.

    Now we are in fairly good stead .. interest on our 20 Trillion dollar debt is roughly 450 Billion/year which is 11% of our 3 Trillion dollar income.

    The problem is that getting the 30 yr Tbill rate down from the historical norm of 6-7% (where it was in 2000) and this represented the ave interest rate on our debt ... to an ave rate of 2.25% ... required some heavy messing around with the invisible hand.

    This messing around by us and other nations is causing major issues. Luckily we had the biggest economic expansion the world has ever seen in China which helped.

    The fed is now wanting to clean up its balance sheet (sell some of the 4 trillion of our debt that it purchased - to try and keep interest rates low- back into the market). Putting a bunch of extra supply into the markets is going to move interest rates up.

    It is not terribly complicated. As the interest on the debt eats up more and more of the revenue coming in ... things get strained.
     
  5. Econ4Every1

    Econ4Every1 Well-Known Member

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    The only signals suppliers see is increases or decreases in inventory. With exceptions being in money markets and markets directly related to the exchanging of money.

    1/3 of money paid on interest is completely canceled out as it is used to repay money the government has borrowed from itself. 1/3 of the money is earned by savers who earn that money as an income (and some of them will spend it increasing GDP) and the last 1/3 is paid to foreign savers most of which aren't driving demand in our domestic markets and therefore will not drive domestic demand for goods and services.

    First, the $20t that is in circulation today would not be affected if the interest rate increased to 5% tomorrow. Treasuries do not vary in rate only in time to full redemption.

    Second. The interest rate would only go to 5% if the economy were on fire and the Fed was looking to encourage savers as a way to decrease consumption as the Fed can influence rates up or down. Today it does this simply by announcing they will pay interest on reserves. The old method influenced the availability of excess reserves via the FOMC.

    Simple, other people that want to save via the purchases of new Treasuries.

    Since 1940 it has varied between 1.3% (today) and 3.1% of GDP with the average probably (and I'm estimating here) being around 2.2% of GDP over the last 20 years.
     
  6. Econ4Every1

    Econ4Every1 Well-Known Member

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    Where did I conflate them?

    I said, "When the government reduces deficit and or runs a surplus it is taking money out of the economy in the form of taxes"

    That is true.

    When the government runs a $500b deficit one year and reduces the deficit to $300 billion, it has reduced its spending in the economy by $200 billion. That is a reduction of dollars to the private sector relative to the year before.

    Now I'll admit that in that case, we're talking about relative reduction, not an overall reduction, so I'll agree I could have been clearer. Only a surplus removes overall dollars from the economy.

    Ok, so give me a modern example of a sovereign money nation with a free floating currency (like the US) that was ruined by debt?

    That's a total Red Hering....Interest payment here in the US is 1.3% of GDP as of today and, though I've never seen interest payment expressed as a % of income, last year it was less than half of your 30% at 13%. Given the consistency at which the interest payment has remained as a percentage of GDP, I suspect they have also been steady for interest as a percent of income.

    First, I'm not defending Clinton, running the surplus is, IMO, what started the snowball that first was the stock market crash and later the housing debacle....Having said that:

    Math says otherwise, or I don't know what you're measuring.

    Income at the time was $2.49t and interest on the debt was $361 billion.

    Do the math....About 14%

    I get 13%, but I won't quibble...

    How do you think rates are set?

    Like I told AFM.....

    1/3 of money paid on interest is completely canceled out as it is used to repay money the government has borrowed from itself. 1/3 of the money paid on debt is earned by savers who earn that money as an income (and some of them will spend it increasing GDP) and the last 1/3 is paid to foreign savers most of which aren't driving demand in our domestic markets and therefore will not drive domestic demand for goods and services.

    Payments on debt add to income and a portion offsets the debt. Any interest the Federal reserve earns, the vast majority is returned to the US Treasury.
     
  7. Econ4Every1

    Econ4Every1 Well-Known Member

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    Ok, so let's work this through.

    Today China holds about $4.5 trillion dollars, most of it in cash (FOREX reserves) about $1 trillion in Treasuries.

    Do you know how the Chinese gov came to hold so much US currency?

    I'm sure you're aware that China shorts it's own currency to keep the exchange rate high about 6:1.

    But the reason they intervene is that if they did not the supply of Yaun would fall (increasing the value) and trade would soon be at par.

    This would mean it would cost about the same thing here to make something as it did there, plus there wouldn't be any global shipping to deal with.

    But how does the Chinese government maintain the 6:1 ratio if the market, left to its own would soon find it at 1:1 (or close to it)?

    Because the Chinese government creates ("prints") yuan and buys US dollars from Chinese companies looking to trade out of dollars.

    So you want me to believe that China is going to keep buying our dollars but wouldn't be interested in staving off inflation by purchasing Treasuries?

    China can't stop buying Treasuries as long as we are running a massive trade deficit with them.

    As far as the debt. it's all relative. The debt is no higher today as a % of GDP than it was in 1940.

    It's private debt that's the real problem. In 1970 it was 100% of GDP, today it's approaching 300%.
     
  8. Econ4Every1

    Econ4Every1 Well-Known Member

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    The US Justification was Russias involvement in meddling with our elections.

    And with respect to the Constitution, it doesn't apply to non-citizens
     
  9. GodTom

    GodTom Well-Known Member Past Donor

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    Last edited: Aug 23, 2017
  10. AFM

    AFM Well-Known Member Past Donor

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    You make my point.
     
  11. Econ4Every1

    Econ4Every1 Well-Known Member

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    This FSI measures the overall level of household indebtedness (commonly related to consumer loans and mortgages) as a share of GDP.

    That's only households as it relates to Mortgages and other consumer debt.

    There is this, which is a more accurate measure, but I believe there is even more. Trying to find it the graphh.
    [​IMG]
     
  12. Econ4Every1

    Econ4Every1 Well-Known Member

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    I'm happy we agree.
     
  13. GodTom

    GodTom Well-Known Member Past Donor

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    Credit is not the same thing as debt.

    Credit is what you are permitted to borrow. You haven’t borrowed it yet, but you could if you wanted to. The credit limit on your credit cards is your credit.

    Debt is what you owe. It is money you have already borrowed, and are paying interest on. A car loan or the balance on your credit card is debt.
     
    Last edited: Aug 24, 2017
  14. Giftedone

    Giftedone Well-Known Member Past Donor

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    Argentina and Russia defaulted after the Asian Flue crisis in the late 1990's. Greece has been crippled by debt.

    You seem to think that this is "funny money". Its not. There is a reason why a red light goes off at the IMF when interest in debt as a ratio of income hit 30%.

    Why are you talking about interest payments as a ration of GDP ? That is a completely different metric.
     
  15. Mac-7

    Mac-7 Banned

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    Interest on the debt could wipe out the federal budget and leave our military without guns and clueless obama voters on welfare without butter
     
  16. Econ4Every1

    Econ4Every1 Well-Known Member

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    No, that's not what you are "permitted to borrow", that's what has been borrowed, it just includes business and finance sectors
     
  17. GodTom

    GodTom Well-Known Member Past Donor

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    It says credit right at the top.
     
  18. GodTom

    GodTom Well-Known Member Past Donor

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    At the top of your chart it says credit. I followed the link from the picture and it clearly is about credit.
     
  19. Econ4Every1

    Econ4Every1 Well-Known Member

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    Russia and Greece do not operate as sovereign money nations. So it's not the same.

    If I told you my payments on my debt were $8000 a month. Do I carry too much debt? Or are you missing some info to figure that out?
     
  20. Econ4Every1

    Econ4Every1 Well-Known Member

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    Credit extended
     
  21. Giftedone

    Giftedone Well-Known Member Past Donor

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    This is the way things go. It is the unbroken historical cycle of debt and default.

    Some seem to think this is "funny money" ... "we can just print more". This is not the way it works :)
     
  22. Giftedone

    Giftedone Well-Known Member Past Donor

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    Spare me your psychobabble. There is a difference between the nation that controls the world reserve currency and nations like Greece and Russia but, at the end of the day debt can lean to ruin in both situations.

    For the US it will mean losing reserve currency status.

    Your example is mindless as you give no constraints. Obviously 8000/month is nothing if someone's income is a billion dollars/year. If someone's income is 10,000/month that person is in big trouble.

    This convo is becoming inane.
     
  23. Econ4Every1

    Econ4Every1 Well-Known Member

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    I get it. It's doubly hard. Don't feel bad, most people aren't willing to learn.

    First, you have to be receptive to new information which means admitting that you might not know something.

    Then, there is the fact that the economy itself does not lend itself easily to intuition even though most people think that it does (which is the real thing that makes it hard).

    It's not the individual ideas, inflation, supply, and demand etc, that are hard to understand, but how they relate to each other and how the private sector relates to the public sector.

    Dismissing it is so much easier. Convince yourself I have no idea what I'm talking about. Protect your ego.

    I understand, really I do. I see it all the time.

    Why am I so arrogant?? Why do I talk like this?

    Because I've spent 13 years learning how the economy actually works. I know the difference between the types of currencies used in Russia and Greece when compared to the US and I know the consequences of it. I know why most of the world uses US dollars as a reserve currency (and no, it's not simply because Saudia Arabia sells its oil in dollars).

    Do I know everything? No, I have TONS more to learn and people like you challenge my ideas all the time. Sometimes I go back and find that I'm right and I explain why and sometimes I'm wrong, and I learn something and I add that to the knowledge already gained.

    I don't do this to prove others wrong. I do this because people prove me wrong all the time. I learn from it and next time I know more than I did last time.

    I understand the consequences of a currency backed by gold and the difference in a fiat currency and I know when people are confusing the two.

    So if you want to bury your head in the sand and dismiss me. By all means, don't waste my time. If you're interested in having a conversation where we share ideas, then pull up a chair, I enjoy a good conversation with anyone willing to have one...
     
    Last edited: Aug 24, 2017
  24. Giftedone

    Giftedone Well-Known Member Past Donor

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    You are the one doing the dismissing. You have been saying things ... I have been addressing your comments. Unfortunately your responses have not addressed my comments with much other going off track.

    I talk about interest/income ratio and all of a sudden you are talking interest/GDP.

    You have made claims that are demonstrably false - Like this
    When I have corrected these claims it is you that was "not willing to learn" so do not project your flaws on to me.

    You asked for a "modern" example of how debt ruined a "Sovereign currency nation". I gave you 2 examples ... Russia and Argentina.

    You then pick out Russia and claim "Russia is not a sovereign money nation" ... no ? how so ?

    Yet you seem to think Argentina is. Since this then satisfies what you asked for ... why then did you pick out Russia who you feel does not ? What is the point other than to be Obtuse. You have no desire to learn .. only to be right .. and when information is presented that conflicts with your perspective you used disingenuous tactics to avoid or deny the fact that you were in error.
     
  25. GodTom

    GodTom Well-Known Member Past Donor

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    Exactly what I said.

    It is a line of credit.

    You extend credit.

    You are being purposely obtuse with this.
     

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