Math doesn’t care about fairness or good intentions. Spending vastly more than you have isn’t good when done by a Republican or a Democrat. Two plus two doesn’t equal 33.2317 after you factor in a secret “Social Justice” multiplier.
Jon Gabriel
October 21, 2013
The Reality of America’s Finances
[H/T to son James for showing me this.
Sometimes I think that part of the problem is that people think that math, even arithmetic, is subject to opinion. People will just proclaim, “I don’t agree with that”, and they believe they have refuted your numbers.
In many ways politics is faith based. The democrats have a tendency towards being economic tyrants and the republicans have a tendency towards being moral tyrants. Neither really understand principles. Or if they do their principles are to destroy the principles they can and ignore the rest.
With their policies having no principles it should come as no surprise they also believe that numbers are subject to whatever whim they have this election cycle. Numbers are just something you use to make your opinion appear valid. And everyone’s opinion is just as good as anyone else’s so that must mean that everyone’s numbers are just as good as anyone else’s.
Principles? They don’t even understand the concept of a principle.—Joe]
Read this: http://www.nakedcapitalism.com/2013/10/stephanie-kelton-how-to-talk-about-debt-and-deficits-dont-think-of-an-elephant.html
It’s total Fail to look at this as a math problem.
That post is, to put it bluntly, total crap. dollar denominated bonds are NOT risk-free. Look at Zimbabwe dollars for an example. Or Deutschmarks. Or all the rest of the currencies that inflated their way into oblivion. Can the be “repaid?” Technically, yes. But the VALUE of something is not the same as it’s PRICE. When you buy a bond, expecting to vain net VALUE (relative purchasing power increase), and that value gets stolen via the theft of inflation, then people stop buying. Then the government can’t borrow, they can only print if they want to spend more than they collect. And then it all blows up. Every. Single. Time. That person might be smart and highly educated, but they have no common sense, and have not studied history. I don’t care what sort of majig you TRY to pull off, when you have fewer workers producing goods in demand than you have parasites, the host dies. Maybe not today, or tomorrow, but soon. In a nation of 300 million, only about half are workers, and many of those are part time. When you consider all the government workers can be considered parasites (they live on tax dollars), then considerably less than half the population is supporting the rest, while trying to save for tomorrow and raise the next generation. That cannot be sustained. Something will break, and soon.
The US dollar is the world’s reserve currency. It’s called the petrodollar for a reason.
And before the US Dollar, it was the British pound. At other times it was the Greek drachma or the Roman sestertius. Like I said, no sense of history. It will continue to be the “reserve currency” until it’s OBVIOUS it is getting inflated away significantly faster than other currencies, and then it’ll crash, and we’ll move to something else, possibly back to a gold standard.
There is discussion of the gold standard in this post: http://www.nakedcapitalism.com/2013/10/the-feds-exit-problem-symptom-of-paradigm-breakdown.html
Another crap article. Biggest problem is that the “paradigm failure” that isn’t being addressed is that of “too big to fail” means the whole system will fail all at once. Failure isn’t just an option, it’s an absolutely ESSENTIAL ingredient to a functioning system. Anyone that attempts to play god and eliminate a whole class of failure will simply squeeze teh balloon and make bigger problems elsewhere, and eventually it will ALL pop. The TBTB paradigm is a new thing, not an old one, it’s utterly ignored.
That link is complete silliness. Yes, on the face of it, she’s right: the government can definitely print money to meet any debt requirements. What she fails to address are the consequences of doing such a thing–in other words: What would happen to the bond market if the government decided to do such a thing?
Let’s assume people still will buy short term bonds at a nominal zero rate like they do now. (When inflation rises, they won’t!) The nominal rate is the expected interest rate minus expected inflation (assuming no default risk). The paid interest will have to scale with inflation in order to keep treasuries a similarly reasonable investment. Changing the nominal interest rate will change the demand, all other things equal.
How does inflation (actually prices, but let’s not get into a debate about how to define inflation) scale? Well, it scales a lot like (change in money supply)-(growth in production). This isn’t exact, but it’s a good first-order approximation. There are a few caveats, as I’ll discuss in a minute.
What’s the bottom line? Debt-paying by money printing will be seen as a de facto default. The expected rate of inflation will rise, leading to higher demanded returns on bonds, thus spurring larger interest payments on existing debt as it is turned over. This is a positive feedback loop, which can result in massive devaluation of the currency. (Hopefully it is arrested before a crack-up boom occurs!)
But that’s not the end of the story. What will happen to actual people as this plays out? Well, there have been plenty of examples in history, but the general idea is that asset dollar prices rise, so anyone holding dollars loses buying power. But even worse, those newly emitted dollars aren’t equally distributed, either in place or time. Rather, the new bucks get sent to government pet projects, banks, etc. They get to spend the new dollars before a corresponding rise in prices occurs. The common man loses his shirt.
Some of Ms. Kelton’s points are even dead wrong! For instance, she says the government deficit = private sector surplus to the penny! Nothing could be further than the truth! Her statement implies that, without government debt increasing, no company could make a profit!
Further, her statement that government deficit is “the source of net financial assets to the non-government sector” is dangerously oversimplified. The incentive structures of public versus private investment mean that even if the government funds some private sector expansion, it is more likely that those investments will be made poorly, due to the lack of a profit motive in the investing bureaucrat.
Actually, inflation IS the printing of money beyond the real growth in the economy. Rising prices can simply be supply-demand issues.
I know that, but there are some economists that claim inflation to be a rise in the general price level. I agree that inflation, properly defined, is a purely monetary phenomenon.
There is more than one type of inflation. One of you is talking about monetary inflation and the other, price inflation.
In a (free) market, prices rise and fall all the time due to supply and demand. Increasing prices in housing because they are not making any more oceanfront property is NOT inflation. It’s a constrained supply with increasing demand. When you print more money, its value falls because the supply is greater, but the amount of good it is chasing is relatively constant. A general rise in prices because money is FALLING in value is inflation. Price inflation is a direct consequence of monetary inflation. Rising prices alone says nothing about inflation.
Ubu, clown economics are not the answer.
The “dot com surplus” that many cite as Clinton balancing the budget never happened. He came close with an 18 billion debt increase, but still didn’t have a surplus.
The reason so many call it a surplus is that they don’t count Social Security as part of the annual budget, so the “surplus” is only present if SS is not counted.
Here is a link to my figures:
http://street-pharmacy.blogspot.com/2009/03/clinton-did-not-balance-budget.html
It’s worth noting also, that this ‘surplus’ was from a Newt/Repub house controlling the purse strings. Clinton had phuck-all to do with it. Remember ‘HillaryCare’? Given the chance, Clinton would have happily taken us full socialist given half the chance.
Crack addicts don’t look at the numbers or principles (objective reality) either, and our society is addicted to government spending.
The only question remaining is; do we go cold turkey so as to get on with life as soon as possible or do we have to go through some sort of gradual process (which no one ever talks about) to get clean?
The third alternative, and the one we’re currently pursuing, is denial which results in destruction and death.
We’re facing a Dark Angel, which rises up before the gates of understanding with a flaming sword and declares; “Though shall NOT be aware!” Anyone seen as possibly shining the light of truth on the situation must be put down as an insurrectionist, when in fact the insurrectionists and usurpers, the rebels, are currently in power.
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For those like Ubu who doubt inflation is real, just look at your food supplies. The manufacturers are in a race to the bottom with quality. The other trick is to lower the quantity, yet leave the package the same. All in a desperate attempt to keep the product price the same, so they can compete with everyone else, who are doing the same thing. Only foods that are hard to screw with are things like fresh fruit, but I’m sure the producers are trying.
And, not just food, either. Just take a look around a Costco, and compare the quality of stuff you have bought over the years, to the current 2nd class stuff now available.
The quality of the stuff they sell in the Food Court has taken a noticeable drop over the last few years, as they reformulate it, or switch to lower quality ingredients. Didn’t happen all at once, or people would have raised hell.
Look at the contents of material in socks they sell. And other articles. New item listed: “Other”, or similar description. In essance, what the makers are doing is sweeping the floor and throwing that back in the kettle. Since they can’t identify it, but still have to account for that 3% or so material, they just call it “stuff”, essentially.