Greenspan: Deficits are OK

[Vanguard]

I would further suggest a 1% surcharge, increasing 1% per month, as a penalty for any country that runs a trade surplus with the United States.

No, that would be bad. Japan and China both need to run trade surpluses with the US (or someone), so that they can buy oil from the Mideast. The US should raise taxes on people who are making a lot of money from trade and use it to reduce the deficit.

[MrBaggins]

Originally posted by Ned
Well, at least most of us now seem to agree that deficits stimulate the economy and are "good" when the economy is underperforming, when there is excess capacity and when there is underemployment. The worry about the market for treasuries depends on the real interest rate -- interest rate - inflation rate. Since inflation now is near zero, real interest rates for treasuries is pretty good even thoung they are nominally small.

Not entirely true.

There are two different types of inflation... produced and unproduced.

Produced inflation (inflation derived from an overperforming economy) is the government responding to privately stimulated fiancing, by increasing the dollar supply. (Federal reserve banks feeding private banks)

Non-produced inflation (inflation derived from debt) is the government responding to its own need for dollars (printing new money to pay back treasury debt.)

Inflation derived from debt is bad, since it increases prices without the corresponding increases in income (that led to the inflation.)

Also, you need to consider the control that you have over the debt.

Bigger debt equals bigger inflationary engine. You can stop adding to it, but not stop how much inflation that it generates. The way you reduce this is by paying down the debt, relatively.

[Ogie Oglethorpe]

Originally posted by Velociryx
Ahhh, I almost forgot! There are also a whole host of farming programs that pay farmers NOT to grow their cash crop! This stimulates demand for finished goods and services, sure, by putting money in the hands of those who will surely spend a chunk of it on...whatever it is they spend it on....and it also takes perfectly usable land OUT of circulation, decreasing the supply of certain goods (milk and tobacco spring immediately to mind here as being reverse subsidy programs I've read about recently) that could be used for viable agricultural pursuits....but of course, the government makes it more lucrative to just....sit there with a hand out.

Again....there are other, better ways of expanding demand (and thereby increasing production and supply) than this....made even worse by the fact that these programs are financed by debt instruments to begin with!

-=Vel=-

Spot on.

The net effect is the elimination of the small generational to generational farmer. As the small farmer is now incented to not put his land into production for long periods of time, he likewise will sell off machinery and other capital that is no longer needed. Net effect is the destruction of the generation to generation small farmer and the reinforcement of the agro-corporations.

[Imran Siddiqui]

Bigger debt equals bigger inflationary engine. You can stop adding to it, but not stop how much inflation that it generates. The way you reduce this is by paying down the debt, relatively.

Yep. A large debt results in less fiscal independance in the long run, because you can't control the inflation from the debt.

[Kidlicious]

Originally posted by MrBaggins
Bigger debt equals bigger inflationary engine. You can stop adding to it, but not stop how much inflation that it generates. The way you reduce this is by paying down the debt, relatively.

No No people. How did you all get on this debt causes inflation so that I don't have to go back.

[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.

[Kidlicious]

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.

The interest is paid each year, unless there is another deficit.

[Kidlicious]

It's paid by taxes that is, not just printing money.

[MrBaggins]

Government *spends* the money that it receives in treasury issues... not just holds onto it. Some, but not all of that money comes back, in way of taxes.

The governement has to raise increasing amounts treasury debt to pay for the last lot, where it doesn't come from taxes.

Where the t-bond market dries... they are forced to increase interest rates, to make them more attractive.

[Kidlicious]

Originally posted by MrBaggins
Government *spends* the money that it receives in treasury issues... not just holds onto it. Some, but not all of that money comes back, in way of taxes.

The governement has to raise increasing amounts treasury debt to pay for the last lot, where it doesn't come from taxes.

Where the t-bond market dries... they are forced to increase interest rates, to make them more attractive.

That's all correct, but that's not saying that the debt causes inflation, only that the deficits do.

[MrBaggins]

Originally posted by Kidicious


That's all correct, but that's not saying that the debt causes inflation, only that the deficits do.

The money to refund the treasury issued maturities comes from additional issues of treasury bonds, not from taxes. Trillions of dollars worth of bonds each year reach maturity. Taxes can't keep up.

Its actually rare for government to allocate money solely towards funding T-bond payouts. Thus budgetary surplus or deficit isn't relevant. They just don't throw money at the system.

Thats why the deficit has reached $7TN... because government treats T-bonds, bills and notes as a bottomless pit.

The bigger the debt... the bigger the additional interest required to borrow for.

Thats "solved" by printing new money, which is definably inflation.

[Kidlicious]

Originally posted by MrBaggins
The money to refund the treasury issued maturities comes from additional issues of treasury bonds, not from taxes. Trillions of dollars worth of bonds each year reach maturity. Taxes can't keep up.

This has no impact on the supply of money as long as other factors haven't changed.

Originally posted by MrBaggins
The bigger the debt... the bigger the additional interest required to borrow for.

Thats "solved" by printing new money, which is definably inflation.

I'm missing something here. How do you get to the point where the money supply increases?

[MrBaggins]

Originally posted by Kidicious
I'm missing something here. How do you get to the point where the money supply increases?

*sighs*

Right now, every day, the government conjures 2 billion dollars out of thin air... It simply prints new money.

Take a peek at the debt clock...

[Kidlicious]

Originally posted by MrBaggins


*sighs*

Right now, every day, the government conjures 2 billion dollars out of thin air... It simply prints new money.

Take a peek at the debt clock...

That's the budget deficit. The money is injected into the economy only once.

[MrBaggins]

Its not the "budget deficit". A large proportion is the the financing of treasury maturity... refi's effectively.

Financing treasury maturity isn't in the budget. Currently that is done by refinancing, entirely.