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

You started with the result (recession) not the cause and avoided answering the question. Why does the economy fall into depression after large surpluses? You told me what happens after the economy falls into recession/ depression.

Budget surpluses accomplished via deficit reduction remove net financial assets from the economy, people lose their jobs as a result of a decreased spending there is a decline in demand and a deflationary cycle begins that can only be broken by a net increase in assets. Government deficit spending is one way to accomplish this.

 

Certainly Dems wouldn't threaten to block it if only their appropriations were being funded. Not that Dems alone will be responsible for what happens. https://www.bloomberg.com/politics/...ight-may-be-too-tempting-for-trump-to-pass-up No matter how, or why, the threat of default is very real.

 

Not necessarily. A deficit is a function of revenues and spending. During the Clinton administration the deficit was reduced without any cut in spending (which increased every year) but because of increased revenues.

I think this is a simplistic causal argument and a "Post hoc ergo propter hoc" fallacy. We had sub 2.5% deficits through the 1960s without a recession. The 1990 recession occurred without a single sub 2.5% year. Deficits fell for 8 years in the 1990s without a recession.

There are many things that can cause a recession in the economy. The early 80s recessions were caused by putting the brakes on the money supply to stop inflation. The 2001 recession was a function of a stock market bubble and the 2008 recession was from the housing bubble.

Trying to attribute it to a simplistic factor like the deficit, especially when there is a dubious correlation, is unrealistic. As I said, we generally see deficits falling with a strong economy, and deficits increasing with a weaker one.

Don't follow. What "order" are you talking about?

No money is created because it "debits" accounts by taxing and borrowing and it is a net wash in money creation.

Yeah it does, because the private sector purchases the bond. The exception is if the Fed buys a bond as part of its money creation open market activity.

No, because the government borrows 20 in this case.

And the notes are purchased (mostly) by the private sector which nets out the 20.

It does have to do it, because otherwise the government doesn't have the 20 to spend.

 

The debt ceiling is an (anachronistic) mechanism to limit the debt, not legislate.

 

Of

Of course this is a political view. We are discussing politics on politicalforum.com

 

Why should it be reduced? Tell us what level of debt is the right level, no guesses, tell us exactly and tell us why.

Where did I say the amount of debt affects the money supply?

Agreed. Operationally only deficit spending and a positive trade balance add net financial assets. Bank loans add to broad money, but all private sector bank loans have a liability of an equal amount within the private sector and therefore net to zero.

Regardless, interest paid on the debt relative to GDP has been between 0.8 and 3% since the 1940's.

 

We live in strange times. The first link touched on the GOP issuing the same threat 2013. Typically the threat is hollow, but DC is very adversarial, and polarized at present. The "little people" are the ones left nail-biting.

 

Let's take your family budget. You earn 100,000 a year, but you're spending 125,000 a year. Your deficit is 25,000 a year. Interest begins to pile up. You must borrow to pay off debt calls, your credit rating starts to suffer. What you're telling me is there is no benefit, your family runs more efficiently and it makes more financial sense to run huge deficits, continue to spend more than you take in....enlarge your deficits and thus enlarge your debt is your suggestion there?

 

To the contrary. You are the one starting with the result and manufacturing a simplistic cause to suit your position. I explained the causes of recent recessions. And it wasn't a smaller deficit.

Are you really trying to argue that the 2008 recession was caused by a couple percentage point reduction in the deficit, and had nothing to do with the housing bubble?

Why didn't we have a recession in 1996 when the deficit had been reduced by 3 percentage points? Or 1997 when it had fallen by 4 points? Or 1998 when it had fallen by 5 points?

Why don't we have a recession in 2016 when the deficit had fallen by 7 points?

Why did we have a recession in 1990 after the deficit had increased by a point the prior year?

You are making a lot of unfounded assumptions and claims here.

Now, I am not saying that Govt spending has no effect on the economy. But there are many things that affect an economy, and trying to assert that recessions are caused by deficits is ridiculously simplistic and unsupported by the evidence.

 

the gov chooses financial repression to empower itself and enrich the banks that fund the process, which themselves have been propped up by the FED for years

 

The Fed cannot create money unless it holds an asset of an equal amount. Usually, the Fed hold US government Treasuries as assets against which it creates currency. Without Treasury assets, there would be no currency...

 

Well know, the GOP threat was based on trying to use it to legislate. The Dems are not doing that.

 

The Fed has traditionally used US Govt debt for its money creation, for various reasons. But it doesn't have to, as its more recent purchases of MBS evidences.

 

There's little distinction between trying to pass, or trying to block legislation by using "power of the purse" ... Again, who or why, won't affect WHAT the consequences will be. Remember the GOP bit it's tongue and approved Obamas $4.7 trillion "omnibus". Largely to improve their chances of regaining control of congress, which they did. The Dems can ill afford to squabble, if they have hopes for the 2018 mid-terms.

 

There is a big difference between using it to increase the debt ceiling and using it as a backhanded why to effect legislatoin.

So why are the Republicans to blame for simply putting out a clean bill?

 

Only if you stuff it in a mattress. Bank savings become the basis for fractional reserve banking.

It doesn't look to me like they are selling off assets.

Only if our trade agreements are stupid enough to incentivise purchasing from polluting countries while penalizing our own clean production. We have very dumb trade agreements. It's time for smarter ones.

Do we need Oroville Dam, with 188,000 Americans in its floodplane to actually collapse before we recognise that our infrastructure is rotting from neglect? It's time to get to work!

Yeah, you might want to look up the Petro Dollar Recycling. The denomination does have affect because it alters the number of dollars the world must hold, but more importantly the profits from the oil producing countries that is reinvested in the US is a wealth transfer from the folks who purchase at the pumps to those that receive these investment inflows. I think this regime is coming to an end with the rise of the US energy industry, and it will change the way money flows through the US economy. https://en.wikipedia.org/wiki/Petrodollar_recycling

As will I.

It's just American: We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness. That to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed.

We are all created equal.
Our rights pre-exist the formation of government.
Governments are formed to secure these rights.
Governments derive their just power from the consent of the governed.

Our society is built on these 4 foundational truths. What I said was perfectly consistent with what it means to be an American. Are you an American?

Says who? You think if a group decides to do so, that they can strip another American of their fundamental rights? If a group of 5 guys votes to have sex with a woman, they have the right to rape her, because a majority agreed that they wanted to have sex? It is never good for society to violate the inherent rights of others. Now we have formed our government to secure our inherent rights and to regulate the interactions among us.

No it isn't. In fact we tested both in at Plymouth Rock at the very earliest stage of our new country. William Bradford first tried socialism, they starved,and then switched to private ownership and they thrived. We have all proved this over and over and over again. Who washes a rental car? Ever live in a college room mate situation where you evenly split the utility bill no matter who used how much hot water or ac? But if you wanted to reprove the concept for the millionth time, that would make a great study. Group and split the utility bill equally, see useage patterns, then switch to individual meters, with bills they must pay from scarce resources. I guarantee you, you will find more careful stewardship under private property conditions.

Hell, go visit a park in any average city of your choice. It's the tragedy of the commons. They are always overused and undermaintained. The same folks who vote to do that, do not tend to do the same with their own yards!

It's barely short of a criminal enterprise.

China is a bug in search of a windshield. They are in demographic suicide, their country is a toilet of pollution, Russia isn't much better and its people are in such poor health their lifespans expectations are dismal.

Russians rights to each operate in their own self-interests are not guaranteed by their social compact. The country is run by a thug and he runs it for HIS own self-interest.

Our system's better. All we need to do with Russia and China is not get into a nuclear exchange with them and let their demographic suicide take its toll. Russia is already in population decline, China will be early in this century. They will both be a shrinking population of old folks by the dawn of the next century. They are a positive example of nothing.

 

Because we have to borrow that money. Money we don't have. That increases the debt and the debt service cost. Interest rates are starting to rise increasing the cost of debt service. What do you think the interest costs for 20 trillion dollars is?

 

You stated it as if it were fact. Just clarifying.

 

Because a higher percentage of debt relatively increases the amount of interest expense the Govt has to pay.

I can't give an exact "right number." US Govt debt does serve some useful functions -- it provides a vehicle for the Fed to adjust the money supply, and provides a safe (or at least was thought so) place to put money, and sets a base for interest payments on money.

Total US Govt debt was 33% of GDP in 1980. If I wanted to make a simplistic causal argument like you do, I'd say that that lower level preceded two of the strongest decades economically. Seems like a reasonable level to me. It provides the benefits of some debt while minimizing interest obligations, and leaves the Govt sufficient "headroom" to address recessions and financial market crises.

Where did I say you said the amount of debt affects the money supply?

I didn't.

I said: The US Govt borrowing money or repaying debt does not affect the money supply.

If you agree, why would you say "Repayment wouldn't result in hyperinflation, just the opposite. As the money was repaid, the value of dollars would increase..." That sounds like you are talking about money supply.

I didn't say anything about net financial assets.

Bank loans increase the amount of deposits, not the amount of base money (currency and its electronic equivalent, bank reserves at the Fed.





Regardless, interest paid on the debt relative to GDP has been between 0.8 and 3% since the 1940's.[/QUOTE]

 

There are no normative facts. If you're discussing how the world ought to be you are invariably making subjective value judgments.

 

First, I said SURPLUSES have, 6 out of 7 times, lead to the nation falling into depression. I asked why, and you proceeded to describe the after effects of recession.

Next, I never said that all deficit reduction leads to fiscal calamity. I posted this chart above, that shows that, since the fiat standard was introduced, when deficit spending falls below ~3% of GDP the nation falls into recession;



As far as 2008, the nation should have experienced a larger recession in 2002 after the surplus, but the dot.com bubble and the housing bubble that proceeded it pumped an enormous amount of broad money via large private sector increases in debt:




1994-1997 we see household debt at about ~4% of GDP

After the surplus we see private debt increase by 100% for the years 2003-2007

A decrease in deficit spending results in an increase in private sector debt and a decrease in savings rates.

This chart shows the inverse relationship between government deficit spending and private sector asset accumulation minus foreign asset accumulation:

[/QUOTE]

 

Sticking to the one point, Europe was in poor condition post war. The USA engaged in the Marshall plan. We were the producers and had a ready market. Funds were supplied to Europe so they could purchase. Hardly does it get mentioned, but troops in combat are not going to find too many places to purchase and they end up remitting their cash back home. When they get home, they have cash in the bank. They really plan to buy more goods.

If deficits were great, all the government has to do is order up more currency and have the Federal Reserve insert it into the market. And that actually happens.

When there is too much money in the marketplace, due to printing more money and borrowing more, it leads to inflation. Few people believe in a sustained inflation.

 

did you read my post? The FED creates the money by taking the bonds off of the investment bank's books in exchange for currency that it creates and places on the books of the banks.The banks net zero (not counting the bond brokering fees they collect from the gov) and the gov ends up with currency. The FED ends up holding assets of equal value to the currency it just created.

 

Sure, but that's not the point of the exercise. The only point I was making was that the government can never go broke. That is, the government can never find itself unable to pay its debts. Hyperinflation does not change that fact.

 

The 2008 recession was caused by a few percentage point loss is housing CDOs which were leveraged to tens if not hundreds of trillions worth of swaps on the books of the banks