Forum Thread

In the name of MLK, THE TRUTH MUST BE TOLD: THE DEFICIT IS NOT HIGH ENOUGH.

Reply to ThreadDisplaying 8 Posts
  • Strongly Liberal Democrat
    Democrat
    Dallas, TX
    Are you sure you want to delete this post?
        
    The national debt is not a problem. There is no risk of insolvency. Treasury rates reflect expected changes in the effective fed funds rate, which the FED controls as the monopoly supplier of reserves by Federal Open Market Committee (FOMC) vote. There are no bond vigilantes in the Treasury bond market. The limit on the amount of dollars the government can create is on the real side of the economy, i.e. real resources including labor, industrial capacity, natural resources, etc. And it's not an operational limit, but if the resources aren't there to put towards productive output, deficit spending can cause inflation. However, if there's resources that we are not using, we can always spend to put those resources to use. Furthermore, the government does not control the deficit, and a deficit, per se, does not tell us if the government is of an expansionary mind. The size of the deficit is determined by the savings desires of those that use the currency. It is a national equity, and it is what supports the private credit structure. When that equity gets too low to support the credit structure and savings demands, the economy must necessairly contract. We literally have morons running the big show. It's literally that simple. We have a belief system in place that precludes us from doing the right thing. These neoliberals have everything backwards. Government deficit=non government surplus (link).

    The funds to pay our taxes and buy government securities come from government spending. If the government did not offer Treasury bonds, deficit spending would just pile up as excess reserves in the banking system, and the fed funds rate (overnight interest rate for needed bank reserves) would drop to zero, without the FED paying interest on excess reserves. Again, none of that is a problem. The only reason the government offers Treasuries is because the Treasury cannot LEGALLY overdraft on its account at the FED, which capitally solvent private banks are allowed to do.

    The 12 Federal reserve district banks are privately owned co-ops by the private banks. The Federal Reserve Board of Governors is a government entity. Federal Reserve does not lend to the US government. The US Treasury cannot borrow directly from the FED, by law, unlike private banks which are allowed overdraft privilages. Furthermore, the FED turns profits over to the US Treasury. Rate of interest paid by the US Treasury to sell government securities reflects expected changes in the fed funds rate. The fed funds rate is a policy variable decided by the vote of the Federal Open Market Committee (FOMC), which includes the Board of Governors, the NY FED president, and 4 rotating district bank presidents. the FED sets the fed funds rate and defends as the monopoly supplier of reserves. US government securities are functionally just like having a savings account at the FED. The only operational reason for offering interest paying securites is to allow the FED to target a positive (above 0%) fed funds rate. Otherwise, deficit spending by the US government would cause the fed funds rate to fall to 0%. None of that is a problem and the interest paid by the government is like free money for US bond holders, and thus a classic special interest subsidy. Modern Monetary Theory (MMT) advocates doing away with government securities and a permanent 0% Fed Funds rate, as higher interest rates are inflationary, while the Fed's policies regarding reserve liquidity disadvantage small banks and are counterproductive.

    THE TRUTH MUST BE TOLD.

    THE DEFICIT IS NOT HIGH ENOUGH.

    MLK's "Radical Revolution of Values" (link).
  • Independent
    Plymouth, WI
    Are you sure you want to delete this post?
        
    Sure run it up some more and justify it, we can afford a trillion a year in interest no problem, since we won't be around to pay it back, in fact, at the rate we are going, I would say America won't be around to pay it back at all soon, we will be a China controlled state, with death camps for Americans just like Hitler had death camps for the Jews. By the way, do you live in China Carlitos, that name does sound a bit china?
  • Liberal
    Independent
    Durham, NH
    Are you sure you want to delete this post?
        
    Sorry United, I think CBB is wise beyond his years! Everything he posts makes a lot of sense!!!
  • Strongly Liberal Democrat
    Democrat
    Dallas, TX
    Are you sure you want to delete this post?
        
    Did I not say that interest payments are a classic special interest subsidy? And that we should do away with that b/c it serves no needed operational purpose?

    China has a checking account at the FED. They get dollars by selling us stuff. When they buy a US government security, we mark up what is really a savings account and draw down on their checking account.

    In the banking system, loans create deposits. We don't need China's dollars to spend. They need to save our dollar if they want to run a trade surplus with us by definition. They send us real stuff in excess of what we send them, and they get our dollar. This helps the Chinese government run smaller government deficits, and maintain higher employment, but at the expense of real resources that they don't get to use.

    For centuries, when another nation sent you their stuff and money we use to call that tribute.
  • Independent
    Ft.myers, FL
    Are you sure you want to delete this post?
        
    Carlos, I just wonder, because I'm not that smart, I guess the trade imbalance favors China, so I guess because of that we owe them?
    Also I always thought the Deficit (debt) is created by too much spending versus too little income ( taxes, duties, etc.)
    May be you can explain the workings a bit better.
  • Strongly Liberal Democrat
    Democrat
    Dallas, TX
    Are you sure you want to delete this post?
        
    Okay, so the balance trade is in our favor. China sends us real stuff in excess of the real stuff that what we send them. The difference is made up by the financial assets that they acquire. So they are sending us real resources in exchange for the US dollar made in the USA. China has very high domestic savings rates and they don't have the infrastructure for a consumer driven employment sector. So they build stuff and send it to us to keep their people working. They, like us, have mental problems about government deficit spending. They still run government deficits officially and unofficially, and they are increasing it this year (the official reported government deficit). The authorities in China also do back-door government deficit spending (the unofficial) through the state banks by ordering loans made without regard to profitability or if the borrower can pay it back, and those losses end up accumulating at their CB in the form of negative equity.

    So China sends us stuff, and that can unemploy our people, yes, but it also frees us to pursue full employment by other means, if only our government would net-spend enough to keep the domestic workforce fully employed.

    Our government's deficit at a minimum has to equal the Capital Account balance (foreign net financial dollar savings) in order for our domestic private sector to net-save.

    government sector + private sector + foreign sector =0.

    US Government deficit =non US government surplus.

    You are correct about the deficit which is the result of more government spending than taxes collected. But the government does not decide on the size of its deficit. The size of the deficit is necessitated by the decision to save by the non-government. For any agent to save, another agent has to run a deficit, or that amount of output doesn't get sold, and there's that much less aggregately saved. This is known as the Paradox of Thrift. Involuntary unemployment is the direct result of government not spending enough for us to pay our taxes and save what we try to save.
  • Independent
    Plymouth, WI
    Are you sure you want to delete this post?
        
    CBB
    I am skeptical about your post, but as pgr pointed out, you are far more educated about this stuff than I am. Still, this type of thinking reminds me when college professors were teaching that America is not a manufacturing country anymore, and that we are a service country now, since China has all of our manufacturing jobs. I couldn't believe my ears when I first heard this and talked to several college students about this new teachings of what kind of country America is, sure enough, they were being taught that America is a service country, not a manufacturing country. Without out manufacturing exports, who in this country will be able to afford a new roof or new siding or a new swimming pool? Services are great, but what good are they unless you can afford them? What did these professors have in mind when they said America is a service country, our military is our service? Back to your post, when I face a question I am unsure about, I always ask my best friend for his feelings on the subject, he is far more educated than I am, so that is what I am going to do, email him this thread and see what he says about it.
  • Strongly Liberal Democrat
    Democrat
    Dallas, TX
    Are you sure you want to delete this post?
        
    Remember, you don't want exports, per se. That's the thing. You want to put your people to work maxmizing domestic output, and then have that output for your people to consume, raising their standard living. When we export, that's real resources we send abroad for other countries to use. The economy is about real things. So you know 'take the money' out, and just think about the resources being exchanged. So when China is sending us stuff for our dollar, a dollar that is a simple public monopoly made in the USA, who is getting the most real benefits from the trade? We are. The real terms of trade are in our favor. China's our bitch, in crude terms.