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

Ok, I apologize, I have a lot of conversations going here at once. What is the point we're debating here?

 

It could pay it, but it could go no further as it could sell no more debt, as nobody would by it. And then yes, it would be broke

 

how currency is created

 

Non Economics guy here... How did Greece go broke then?

 

Spending as a percent of GDP had begun declining in the early 1990's:

I've already addressed all of these objections.

I said that this was the case since the fiat standard came into effect in 1974, thus I was not addressing the 1960's.

I also said that deficit reduction is not what triggers a recession, rather when deficit spending falls below ~3% of GDP.

Sure, the economy is complicated. However, I've already lent evidence to the fact that when the government lets deficit spending fall to a certain point, usually under ~3% of GDP, private sector increases it's borrowing and decreases its savings.

And yet depressions were all preceded by massive cuts in federal spending and recent recessions have all been preceded in decreases in deficit spending. Now I'm not trying to claim that deficit spending is the only cause, just that a lack of deficit spending, below a certain threshold is something that generally causes a recession.





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.[/QUOTE]

 

No. Banks don't lend customer deposits to other customers. Banks can make loans to customers all day long without the required reserves and acquire them at the end of the day. Thus the reserve levels held at any given bank do not constrain lending in any meaningful way.

Even if the entire banking system does not have required reserves to lend a bank that's just made a loan and finds itself in need of additional reserves, the bank can borrow directly from the Fed (overdraft) and just price the loan to the customer accordingly.

QE proved that "loanable funds theory" 100% false.

The Fed manipulates rates via OMO (prior to 200. The Fed does not control the quantity of reserves, creditworthy borrowers and their desire to borrow at the prevailing rate is what determines to borrow. The Fed manipulates the desire to borrow by manipulating the price of reserves, not the availability.

Your graph is total assets. The assets i'm refering to are held as part of QE and excess reserves. As you can see the amount of excess reserves is declining and when it gets back to pre-2006 levels the Fed will use open market ops to control rates again.

Agreed. But if you believe that taxes pay for spending, and you pay for infrastructure with taxes you will remove exactly the same amount of money to the economy that you add.

But that's just it. The world doesn't chase US dollars just to buy oil, they chase US dollars because they want to sell us their goods and increase export revenues.

Look, it's not that I disagree with the sentiment. I think the words are brilliant, not because they are true, but they inspire us to believe them.

I just don't agree that rights are "self-evident" or endowed by anyone or anything.

The fact is, you can declare your rights all you want, if the group around you doesn't respect your right, you don't get any.

now is it really so important that I argue this with you? No, not really. Like I said, I appreciate the sentiment. it's sort of like religious morality. I'm glad Christians think murder is wrong even if the only explanation is that "god" tells them so. I also think it's wrong, but I ground my morality in human experience rather than just accepting it without question.

The truth is, the world needs religion and a Constitution with pretty words that declare our innate rights because not everyone is capable of working out those kinds of things for themselves.

Yep, agreed. China just has a different culture, but the fact is that the low cost on iPhones and cheap Jeans is paid for in human suffering and environmental damage in some other part of the world.

Mostly agree.

 

.

 

I believe the numbers come from the CBO. The underlying issue is when is too much debt too much? When do we have so much debt that all we can pay for is the interest? What if the interest on the debt surpasses both non-discretionary and discretionary spending by the federal government? The payment for the interest on the federal debt right now is 7% of the federal budget. What if it becomes 17%? What if it becomes 30%? What if it becomes 50%?

 

True.....
but it is a fact that the USA Federal government does not really have to collect taxes at all.......
Taxes are an important part of the whole smoke and mirrors trick......

I would recommend an income tax rate of nine percent.....
and perhaps a twenty five thousand dollar income that is tax free.......
just to continue to make it possible for some branches of law enforcement to prosecute the bad guys for
income tax evasion......


http://www.politicalforum.com/index.php?threads/why-does-government-bother-collecting-taxes.456618/

Why does Government bother collecting "taxes"?

 

Remember that 1/3 if the interest paid is earned by the federal government another 1/3 is earned by people in the private sector as taxable income.

 

I think you and perhaps the original author misunderstood Ruml's point..

He never said taxes weren't necessary, he said that taxes weren't necessary to fund spending.

Quote:
“…inconvertible currency, a sovereign national government is finally free of money worries and need no longer levy taxes for the purpose of providing itself with revenue… It follows that our Federal Government has final freedom from the money market in meeting its financial requirements… All federal taxes must meet the test of public policy and practical effect. The public purpose which is served should never be obscured in a tax program under the mask of raising revenue.”

He goes on to explain how, with Federal spending not revenue constrained, the first function of taxation is to regulate the value of the dollar, which we know as regulating inflation. The notion of the Federal government ‘running out of money’ and ‘dependence on foreign borrowing’ as well as ‘sustainability’ is categorically inapplicable.

Federal taxes can be made to serve four principal purposes of a social and economic character. These purposes are:

1. As an instrument of fiscal policy to help stabilize the purchasing power of the dollar;

2. To express public policy in the distribution of wealth and of income, as in the case of the progressive income and estate taxes;

3. To express public policy in subsidizing or in penalizing various industries and economic groups;

4. To isolate and assess directly the costs of certain national benefits, such as highways and social security.

 

Greece does not create its own currency. It uses the Euro and its deficit spending is capped at 3% of GDP. The US our economy, since 1974, has fallen into recession whenever our spending drops below 3% of GDP.

They cannot effectively deploy monetary policy.

Now, I've been called out for oversimplifying the problem, and to some degree that is true. Deficit spending is not a cure-all, but I wanted to bring attention to the issue of deficit spending, hence my focus on it.

 

Based on what Ive seen here from the debt is good people, the US govt should just cut everyone a 1 billion dollar check today and let the roaring 20's return again.

 

Interest grows geometrically

Why can the US create it's own currency?
Why can't Greece?

 

At the risk of stating the obvious, less debt = lower interest payments. At least in theory, someone has to pay off the debt. Though that said, the USA is so deeply in hock you have to wonder how it could ever return to surplus. Maybe the lenders see it as written off, and aren't really bothered as long as they go on receiving interest?

 

this level of monetary policy is a bit over my head, but what happens if China doesnt like our tone regarding the S. China Sea and decides to cash in all of the bonds they are holding?

 

They gave up the cspital to purchase the debt. I'm sure they'd like repaid, and in a currency that still held value

 

Inflation is when there is a rise in the general price level.

And so does 66% of the interest earned as income right here in the US.

I never said or inferred that Greece couldn't create it's own currency. Surely, you must know that the Drachma was the currency of Greece before the Euro.

Greece absolutely can (and should as far as I'm concerned) create its own currency again, but chooses not to for political reasons.

 

An excellent question.

Are you aware that today China holds 3 times more money in dollars than it does bonds? Yes, China already holds $3 trillion US dollars (called FOREX reserves). It holds $1 trillion in bonds.

So the Treasury marks up China's account at the Fed (that's where they store their US dollars) by $1 trillion and China will now hold $4 trillion in US dollars. What's changed? Nothing really, except now instead of losing value on $3 trillion from inflation, now China will lose value on $4 trillion dollars due to inflation. Plus, we won't have to pay interest on the $1 trillion in US Treasuries it's just cashed in.

So how do we lose in this scenario?

 

I've said many times in this thread that there are real limits on government spending, I'm just arguing that those limits aren't fiscal. That's all.

 

Ok, maybe I need to make myself a little more clear. What happens if China dumps all of their US dollars and treasuries onto the market at once? Most likely at fire sale prices since the only reason they would do that into hurt the US.

It seems to me that a glut of low cost dollars and treasuries could do significant damage to our financial system.

 

the gov is a net debtor not creditor

 

OK, but you didn't really answer my question. What if the interest that is paid on the national debt becomes the single largest line item in the budget? What if the tax revenues pay for the interest but little else?

 

Lower interest payment just means that bond holders 2/3 of which are in the US would get less income from interest payments they earn as income.

Why would we ever want to run a surplus?

 

The debt is carried outside the private sector. Every dollar the US government spends is held as an asset by the non-government.