« “Ben Finney, Anthropologist Who Debunked Theory on Island Settlement, Dies at 83” - TTG | Main | The "17 Intelligence Community Agencies" Canard on Russian Interference by Publius Tacitus »

19 June 2017

Comments

Feed You can follow this conversation by subscribing to the comment feed for this post.

MRW

Sam Peralta,

There is a looming pension crisis in the next few decades as pension funds have not been adequately funded. Note the recent report that GE's pension fund is underfunded by some $30 billion.

GE's pension fund is a private sector entity, not a federal government one. Why are you mixing public (federal government) and private here?

MRW

Sam Peralta,

Under MRW's logic the federal government could spend to infinity

No, it can’t. Remember, the federal government isn’t “spending.” It’s purchasing. It’s buying. From the private sector in order to provision itself.

There aren’t enough goods and services being produced, the so-called (and goobledegook term of) “aggregate demand.” Aggregate demand just means total sales of goods and services in the economy.

(BTW, another obscurantist macroeconomic term is “demand leakage.” It means savings. But the bastards refuse to speak plain English so Joe Six-Pack can understand it. “Deleveraging” is when the private sector is paying down debt, and not spending.)

MRW

Sam Peralta,

He also always claims the federal "debt" is "equity" of the American people. There is no equity in consumption only in assets.

Confused statement. Under standard accounting rules, equity is listed on the right side of the ledger, in the Liabilities column. Assets are on the left.

MRW

Sam Peralta, [this may be a duplicate. Typepad went screwy.]

He also always claims the federal "debt" is "equity" of the American people. There is no equity in consumption only in assets.

Confused statement. Under standard accounting rules, equity is listed on the right side of the ledger, in the Liabilities column. Assets are on the left.

MRW

Sam Peralta,

When the Federal Reserve buys a Treasury security they have monetized debt.

No, it doesn’t. The Federal Reserve buys and sells treasury securities to manage the overnight interest rate, or Fed Funds Rate, except in the extraordinary situation of 2008. The purchase and sale of treasury securities are done by agents in the private sector called “Primary Dealers.” The Federal Reserve has no control over buyers and sellers of treasury securities. The private sector buys and sells them at their whim, not the federal government’s.

MRW

Sam Peralta,

Taken to its logical conclusion the Federal Reserve could fund infinite government spending as it buys every Treasury security and bond issued by the government and could own every asset in the United States as it buys all securities from municipal debt to equity in every business.

If you call that logical, you need some time off. Every treasury security the Federal Reserve purchases on the open market, the only place it can, removes that interest income from the real economy going forward (and incidentally drives up the value of the USD because there are fewer of them in the real economy). The seller to the Fed still gets his dough back, although he has no clue he’s sold to the Federal Reserve.

When the Federal Reserve purchases treasury securities, it reduces the amount of USD in the real economy. Once a year after the Fed pays its expenses, it must return all interest income by law to the US Treasury. I remember in 2012, the amount returned was $100 billion.

By returning those USD to the US Treasury it is extinguishing those USD in the real economy. Poof.

MRW

Sam Peralta,

MRW's macroeconomics is voodoo economics. . . . By his logic Venezuela and Zimbabwe would be world financial powers. They too issue sovereign currencies.

Venezuela’s Bolívar fuerte (since 2008) has a fixed exchange rate, not a floating exchange rate, like ours. Zimbabwe uses a basket of currencies. You don’t know what you’re talking about.

MRW

Sam Peralta,

The USD is pre-eminent today, just like the GBP was in its heyday. That position is not sacrosanct as it was with the GBP.

The USD is more sacrosanct and protected, not less. The GBP was bankrupted by what it owed us for creating armaments and planes for them during WWII. All international payments were in gold until August 15, 1971. Draining its gold supply is what did the GBP in.

It is my personal belief that the only threat to our reserve status is China by 2030. I believe Obama removed the underpinnings of our reserve status by imposing sanctions on Russia, which made new partners out of Russia and China. Since Obama and his advisors had no clue how macroeconomics worked, and the consequences for us internationally by certain actions, he acted recklessly.

I believe that China has about 13 years in which to replicate and replace the enormous daily market in treasury securities which the US currently enjoys. And the world wants.

If China can do that—and I wouldn’t put it past them now that they have decided to become an importing country—then the world will want Yuan, not USD. (China is already insisting on paying for certain imported goods in Yuan not USD. It learned fast.) If global energy needs can be denominated in Yuan, bye-bye USD as a reserve currency. It won’t bankrupt us, but it will stop all wars we currently finance with keystrokes in our unit of account (USD) because we will have to exchange them for Yuan. Many of our bases worldwide could probably close as well should that happen if the host country insists on Yuan instead of USD. And we will be buying Yuan on the open exchange market.

MRW

Colonel,

Loans create deposits. The loans have nothing to do with a bank's vault cash or money in their Fed reserve accounts.

Banks worry about meeting their reserve requirement on those loans two or three weeks later. If they don’t have enough reserves, they either borrow from other banks or go to the Federal Reserve which is legally bound to supply them. For a free of course.

But you are correct that banks create ‘money'. The thing is that it’s credit money. Banks cannot and do not produce physical currency nor the cash equivalent, treasury securities. Only the US Treasury can do that.

Hell, every time you and I use our credit cards, we are creating money, just like the banks do.

MRW

We’re not talking about commercial banks, Jack. We’re talking about the federal government monetary system and how it operates.

You’re talking about private sector operations (where commercial banks like yours operate) and I am addressing public sector transactional operations, just to put it at its barest.

You are talking about the world of microeconomics. I am addressing macroeconomics. Microeconomics can also be called household economics because 70% of the spending in the economy is by households. (And also include state and local government economics.) Confusing the two is where President Sparky got that ‘we have to tighten our belt like households do’ in 2009.

The federal government is not a household! The federal sector has the legal ability, granted by the Constitution to Congress, to "coin money.” If the rest of us do it, it's counterfeiting. And the Legal Tender Cases is the 1870s determined that whatever the federal government determines as “legal tender” fulfills its right to “coin money.” It doesn’t have to be actual metal tokens. It could be matchsticks. Or wooden Tally sticks like Great Britain used for 400 years. (Where we get the term ‘tally something up’.)
http://unusualhistoricals.blogspot.com/2010/10/money-matter-tally-stick-system.html

MRW

Jack,

And what is your first hand knowledge of the US Treasury and how their transactions work?

I don’t doubt your knowledge as CFO of a decent-sized commercial bank. But all the loans your bank issued required collateral, an interest rate, and a repayment schedule, did they not? Your bank performed credit analysis on those they gave loans to, did it not? And your bank earned its revenue from interest on those loans, did it not?

“High-powered” money, federal government money, does not come with an offsetting liability. it has none of the requirements your bank imposed upon its customers. It was for the congressioanally-approved vendors to keep (in return for goods and services). It doesn’t have to be paid back.

turcopolier

MRW

"do not produce physical currency" I did not say anything about "physical currency." But I seem t orecall that some state institutions can produce local currency. pl

MRW

Colonel,

Please pour your judgment into my container as to what in my "public/debt/macroeconomics" I have wrong. pl

Oh lord, answering that could take all month. Or take a look at the series of responses I gave to Sam Peralta’s screed that I’m dangerously deluded

Why don’t you take a look at this easy to understand article that came out on June 19, last Monday. This author gets it right. And what she is saying applies to her native Australia, Canada, Japan, Great Britain and the US. Just read the first 1/3 at least. get past the picture of Stephanie Kelton.

"The cost of getting it wrong”
http://www.democracyatwork.info/the_cost_of_getting_it_wrong

turcopolier

MRW

"that could take all month." thanks for the disdain. I don't like the arrogance in your remarks. pl

Jack

"We’re not talking about commercial banks, Jack. We’re talking about the federal government monetary system and how it operates.

You’re talking about private sector operations (where commercial banks like yours operate) and I am addressing public sector transactional operations, just to put it at its barest.

You are talking about the world of microeconomics"

What, you think we are idiots and don't understand the difference between macro and microeconomics or how the federal government funds itself or how central banking works?

"And what is your first hand knowledge of the US Treasury and how their transactions work?"

What is yours? And what exactly are your credentials?

It is clear from your responses that you are confused about what the Federal Reserve does and what the Treasury does. BTW, I do have first hand knowledge of the role and interaction between central banks and the Treasury and the Finance Ministries of various European governments.

IMO, you pretend to be an expert in federal government financing, because there are many elements in your posts that demonstrate that you don't grasp some fundamentals. Col. Lang is spot on. The disdain and arrogance in your posts is a facade for your pretension of expertise.

Pundita

LeaNder,

Are you saying you can't understand any part of my discussion unless I provide authorities in support of it? Or are you saying you can't accept any part of the discussion for the same reason?

Either way you're making a preposterous request.

Today the U.S. can't celebrate the national holiday of Thanksgiving without some Americans shrieking that the Pilgrims were racist. This is the kind of situation I was addressing in my response to Colonel Lang's remarks about the City on a Hill and American exceptionalism. Read anything more into my discussion and you're on the wrong track.

Boiled down, the biggest debate in the USA is between the do-it-yourselfers and the central planners. When some American political scientists try to turn this into a debate about communism versus fascism I think they're talking red herring. That's a European debate; it has nothing to do with this country's history and the present situation in the United States beyond political science professors whose calendar reads 1930.

Regarding your question about how I see eras -- I think of them simply in terms of quarter centuries. This allows me to group together important situations that happen over a period of 25 years in which American presidents have and haven't had a pivotal impact.

turcopolier

MRW

Having spoken with you I withdraw my criticism. We all have bad days, some more than others. pl

Sam Peralta

Man, you're all over the map. How about first establishing the basics in federal finance?

- The federal government finances its activities (wages for employees, F-35s, medicare, etc) through taxes and borrowing.
- Taxes are legislated by Congress.
- Borrowing takes place by the US Treasury selling securities (bills, notes & bonds) directly via Treasury Direct and through Primary dealers (Goldman, JP Morgan Chase, Nomura, etc). We can come back to agency debt (Fannie, Freddie, etc), guarantees (USDA, etc) and inter-governmental debt (IOUs to social security, etc).
- A marketable Treasury security is a liability on the federal government's balance sheet and interest & principal has to be paid.
- Interest & principal payments on the federal government's borrowings must be financed through a combination of taxes and borrowing.

Do you agree with this? Please don't go on a tangent.

MRW

Deeply appreciative, Colonel.

Jov

@Keith Harbaugh

''Finally, in an act of what we would now call terrorism,
agents of one of the minor powers in the Balkans assassinated
the heir to the throne of Austria-Hungary.''

Bosnia in Herzegovina was an Ottoman province, with an overmeling Serb population, ''taken and given'' in 1878. by the great powers to the Austro-Hungarian Empire to be occupied and administered by them. That occurred after the attempt of Serbs in BH to liberate themselves of the Turks in which many Serbs died, civilians as well, in atrocities committed by the Turks
https://en.wikipedia.org/wiki/Herzegovina_uprising_(1875%E2%80%9377)

Later in 1908. the Austro-Hungaria,, not asking the people who lived in Bosnia, annexed and dealt with the population (mostly Serbian), resources and society in Bosnia in a typically colonial style.I'm sure you know for yourself how all these actions by the K&K empire would be called today.

Gavrilo Princip was not an agent of one of the minor powers-Serbia. He was a 17 year old kid, who thought he was doing the right thing.
He committed murder, and his deed was not smart (in had mostly devastating consequences for the Serbs, whether they lived in Serbia,Bosnia, Dalmatia,etc.) But in accordance to the thought attributed to Thomas Jefferson - "When injustice becomes law, resistance becomes duty", Gavrilo Princip was not a terrorist, by any standards, but a tyrannicid.

I could elaborate this more, but I have the bad feeling, that aside the part of your text I just had to comment, the point of your text was very strong and I agree with it.

The comments to this entry are closed.

My Photo

December 2020

Sun Mon Tue Wed Thu Fri Sat
    1 2 3 4 5
6 7 8 9 10 11 12
13 14 15 16 17 18 19
20 21 22 23 24 25 26
27 28 29 30 31    
Blog powered by Typepad