Greenspan: Deficits are OK

[Kidicious]

Originally posted by MrBaggins
The deficit is the gap between the budgeted expense and the taxation income of the government.

The "Net Change in Public Debt Outstanding" is specific to treasury issued debt and includes both additional revenue AND refinancing of the interest of prior issued debt

The "Net Change in Public Debt Outstanding" (Both the additional revenue and the refinancing) are not covered by taxation... they are covered by increasing the money supply. That is solely inflation. Printing money is inflationary, period.

In table II of that document interest on treasury securities is itemized as a withdrawl. You are saying that is just reported that way? Why?

[Kidicious]

Mr. Baggins,

I can't make any sense out of what you are saying, but you caught my interest so I did some research. I can't find anything to back up what you are saying. All I find is "The Total Public Debt Outstanding is a direct result of receipts and outlays. If the Treasury projects an increase in outlays, then it will issue Treasury securities to meet its obligations. This will result in an increase to the debt. If the Treasury projects an increase in receipts (e.g. taxes or other revenue), then it may not need to issue Treasury securities."

I'm on pain medication today, so maybe I just can't get what you are saying.

[MrBaggins]

Originally posted by Kidicious


In table II of that document interest on treasury securities is itemized as a withdrawl. You are saying that is just reported that way? Why?

Table 2 is for transfers from accounts to an operating cash account. Its an accounting process, because real money is actually paid to remit the redemption of the treasury security. The federal government has a somewhat byzantine accounting methodology.

(Federal accounts)

If you notice further down in the originally discussed table, you'll see a line item for Public Debt Cash Redemp.(III-B) which is the actual dispersement to investors.

[Frankychan]

This is the biggest bullsh** I've seen to date. How can having a deficit be "good"?

Granted, I'm not an economics major, but I always figured

Debt=bad.

[Kidicious]

Mr. Baggins,

Is the reported debt an accumulation of the deficits as they are reported or is it an accumulation of the deficits plus the interest on the debt?

[Kidicious]

Originally posted by MrBaggins
If you notice further down in the originally discussed table, you'll see a line item for Public Debt Cash Redemp.(III-B) which is the actual dispersement to investors.

How does this connect to interest? Can you to show me where interest is not added into the deficit, or where the actual deficit is reported smaller than it actually is.

[Kidicious]

Originally posted by MrBaggins
Government repayment of accumulated interest of treasury issued debt requires increasing the money supply, without generating equivalent value in the economy.

This creates inflation, since every other dollar becomes less valuable, due to the increased money multiplier.

I know what is wrong with this now. The treasury retires the mature debt by issuing new debt. It doesn't monetize the debt, like you are saying. This doesn't increase the money supply.

[MrBaggins]

/me laughs

So you're saying that no money is created on remittance?

How do the government pay back the mature issues then? Its not taxes... they haven't paid a dimes worth of taxes towards treasury issues in years.

[Drake Tungsten]

Granted, I'm not an economics major

Why'd you feel the need to state this? It's implicit in your status as a communist...

[Kidicious]

Originally posted by MrBaggins
* MrBaggins laughs

So you're saying that no money is created on remittance?

How do the government pay back the mature issues then? Its not taxes... they haven't paid a dimes worth of taxes towards treasury issues in years.

They issue new debt. If they paid it off in taxes it would be a surplus. If they printed money to pay it off it would be monetizing the debt.

[Kidicious]

Originally posted by Drake Tungsten

Quote:

Granted, I'm not an economics major

Why'd you feel the need to state this? It's implicit in your status as a communist...

Since when does your degree determine your ideology?

[Ned]

Originally posted by Kontiki
Well, Ned, MrBaggins is explaining it to you, so I don't feel the need to jump in and restate the same thing.

If you need more help, let's start here: Do you understand the mechanisms of monetary policy - that is, what actually happens behind the scenes that causes the end results?

Yes. And I think that inflation is or was caused in the 1970's by keeping the federal funds rate at or below the rate of inflation. It took a long time of monetary discipline to get inflation under control.

This is one of the reasons that I think that interest rates, in particular the Federal funds rate, is a primary cause of inflation when this rate is set below the rate of inflation.

Today the Fed conducts open-market operations to set the Federal funds rate, which is remarkably different from what they used to do in the 1970s. Today, monetary policy controls inflation, leaving the issue of stimulus to fiscal policy.

[Ned]

Originally posted by Frankychan
This is the biggest bullsh** I've seen to date. How can having a deficit be "good"?

Granted, I'm not an economics major, but I always figured

Debt=bad.

Debt = money

money = good

debt = good

[Imran Siddiqui]

Since when does your degree determine your ideology?

Just say the joke was funny / unfunny and leave it at that .

It took a long time of monetary discipline to get inflation under control.

Actually it took a short time to do it. Of course it caused a BIG recession from 80-83. Before then, the Fed was concerned about the high unemployment as well. Volker decided screw that, let's control inflation first.

You'll note that the Reagan tax cuts couldn't stop the big recession caused by the monetary policy... it wasn't until the rates were lowered again, did the economy roar.

Today, monetary policy controls inflation, leaving the issue of stimulus to fiscal policy.

You do realize that fiscal policy also has effects on inflation? The alternate monetary policy (to control inflation) would actually be going against the fiscal policy... to the point of almost negating it.

You can't argue that monetary policy should lower inflation while fiscal policy should increase employment/growth. They would counteract each other.

[Imran Siddiqui]

Debt = money

money = good

debt = good

Let me guess, you have $500,000 in debt to your name in credit cards bills?

[Drake Tungsten]

Since when does your degree determine your ideology?

How can anyone with a proper understanding of economics be a supporter of communism? I guess you could technically be a communist economics major, but you'd have to be a pretty piss-poor student...

[Imran Siddiqui]

Decent troll, Drake .

[Kontiki]

Originally posted by Ned


Yes. And I think that inflation is or was caused in the 1970's by keeping the federal funds rate at or below the rate of inflation. It took a long time of monetary discipline to get inflation under control.

This is one of the reasons that I think that interest rates, in particular the Federal funds rate, is a primary cause of inflation when this rate is set below the rate of inflation.

Today the Fed conducts open-market operations to set the Federal funds rate, which is remarkably different from what they used to do in the 1970s. Today, monetary policy controls inflation, leaving the issue of stimulus to fiscal policy.

OK, but clearly there's some sort of disconnect when you say this:

the supply of money affects interest rates. Inflation is related to the price of goods and services.

Maybe you should explain the mechanism as you understand it. I'm really not trying to be condecending here - perhaps typing it out will allow you to see how the money supply affects inflation. Just do the basics - don't worry about any historical examples or Japan's current situation.

Also, this is a problem:

If the economy has excess capacity and also has unemployment, demand increases can lead to increased production without inflation. Increasing demand does not always lead to inflation.

That doesn't follow from basic supply/demand theory. Excess capacity simply means that production can be ramped up relatively quickly without major investment in plant. Even if there is excess capacity, an increase in demand will lead to an increase in prices due to profit maximization. There may be some lags, but an increase in demand almost always leads to an increase in prices, regardless of capacity.

A simple example: you and a friend make widgets. Not so long ago, there was a demand for 100 widgets a week for $20 a widget, and you could meet that demand with the equipment you have. But now the economy has weakened and you can only sell 50 widgets a week at $15 a widget. You have the means to make 100, but you only make 50 - so you have excess capacity. Since you only need to make 50, you and your friend only work part time - so you have unemployment (well, really underemployment, but it still works in this example). All of a sudden, demand picks back up to 100 widgets at $20 each. You're still within your capacity, but there has been price inflation. However, if demand picks up even more, then you will need to add to your capacity in order to meet it. The investment in equipment will mean that you need to charge even higher prices (which, luckily, the boom in demand allows for) - this is when inflation really takes off.

Bottom line - inflation is slower with excess capacity, but not non-existant.

[Drake Tungsten]

Decent troll, Drake.

I try my best.

[Ned]

Originally posted by Imran Siddiqui

Quote:

Debt = money money = good debt = good

Let me guess, you have $500,000 in debt to your name in credit cards bills?

If you owe $100k, the banks own you. If you owe $100 million, you own the banks.

[Kidicious]

Originally posted by Drake Tungsten

Quote:

Since when does your degree determine your ideology?

How can anyone with a proper understanding of economics be a supporter of communism? I guess you could technically be a communist economics major, but you'd have to be a pretty piss-poor student...

For me one thing was that economists are utilitarian, and I'm not. Understanding someone's point of view doesn't mean you have to agree with them. I earned my degree in economics, I understand it pretty well, and you could say that I understand pretty well that I don't agree with much of what I learned. I'm still happy to have learned it though.

[Kidicious]

Originally posted by Imran Siddiqui

Quote:

Since when does your degree determine your ideology?

Just say the joke was funny / unfunny and leave it at that .

If I had said it wasn't funny you would have said I was being bitter.

[Imran Siddiqui]

That isn't the point .

For me one thing was that economists are utilitarian, and I'm not.

Not really.. even though they do refer to maximization of utility, it is more of a 'how things are' type of measure; they also think efficiency is just as important as happiness.

[Kidicious]

Originally posted by Imran Siddiqui
That isn't the point .

Quote:

For me one thing was that economists are utilitarian, and I'm not.

Not really.. even though they do refer to maximization of utility, it is more of a 'how things are' type of measure; they also think efficiency is just as important as happiness.

That's part of it, but I was refering to their ethical model. Efficiency doesn't really have anything to do with ethics.

[Imran Siddiqui]

Economists have an ethical model? :hmm:

[Kidicious]

Originally posted by Imran Siddiqui
Economists have an ethical model? :hmm:

[Imran Siddiqui]

Hehe... which is why I think Commies can be economists... even if they are wrong .

[Kidicious]

Originally posted by Imran Siddiqui
Hehe... which is why I think Commies can be economists... even if they are wrong .

3/10

[Imran Siddiqui]

It was better than that!

[Kidicious]

Originally posted by Kontiki
That doesn't follow from basic supply/demand theory. Excess capacity simply means that production can be ramped up relatively quickly without major investment in plant. Even if there is excess capacity, an increase in demand will lead to an increase in prices due to profit maximization. There may be some lags, but an increase in demand almost always leads to an increase in prices, regardless of capacity.

An increase in demand doesn't lead to higher prices when there is excess capacity in the short run. You have to realize that the laws of supply and demand only apply to a situation with full employment. When there is so much excess capacity efficiency lags, because average unit costs go up. Prices are lower when you can stretch your fixed costs over a large volume of production. When you are at full employment you are already operating efficiently and an increase in demand will cause inflation.

Originally posted by Kontiki
A simple example: you and a friend make widgets. Not so long ago, there was a demand for 100 widgets a week for $20 a widget, and you could meet that demand with the equipment you have. But now the economy has weakened and you can only sell 50 widgets a week at $15 a widget. You have the means to make 100, but you only make 50 - so you have excess capacity. Since you only need to make 50, you and your friend only work part time - so you have unemployment (well, really underemployment, but it still works in this example). All of a sudden, demand picks back up to 100 widgets at $20 each. You're still within your capacity, but there has been price inflation. However, if demand picks up even more, then you will need to add to your capacity in order to meet it. The investment in equipment will mean that you need to charge even higher prices (which, luckily, the boom in demand allows for) - this is when inflation really takes off.

This depends on the assumption that you sell widgets for a lower price when there is less demand. In fact, your unit costs are likely to be higher, so you would probably keep the same price.

Originally posted by Kontiki
Bottom line - inflation is slower with excess capacity, but not non-existant.

It probably is nonexistant, or you might get deflation if productivity has improved over the period.