Trump's Tax & Deficit stance might be spot on

[Nima]

Now that he's been elected I thought I'd share something I wrote before the election about Trump's general stance on taxes and the deficit, and how it can have positive implications on economic growth and jobs in the US.

 

"This stance, coupled with a commitment to massive tax cuts may be an indication that Trump’s fiscal stance is in line with supplying the public the private sector saving needed to allow for a return to stronger growth than what we’ve been seeing over the past decade. Only time will tell."

[dsayers]

Taxation is theft. How could that be good? I would say stop stealing from people would be a great way to promote economic growth.

[Spenc]

I don't think this is very productive.  Your post begs the question: is it the role of the government to grow the economy?  Are Is growing the economy the same as improving the state of the economy?  Is it fruitful to grow the economy by driving profits and job growth that are inherently unsustainable as evidenced by the fact they are not driven by market conditions outside of government "pump priming"?  And so on, and so on....

 

I think only statists have use for particular quantitative methods of measuring "economic growth", anarchists have more use use for qualitative methods of measuring economic conditions

[thecurrentyear]

 qualitative methods of measuring economic conditions

 

What do you mean?

[Spenc]

What do you mean?

 

As an example, assessing the legal structures in place that affect economic opportunity.  Quantitative measures will tell us the degree of economic activity, whereas I find it more meaningful to assess the degree of opportunity and freedom to take economic action.

 

A statist will measure and project the quantitative effects of a tax increase and might determine a positive effect will be realized.  An anarchist would make a qualitative determination that the tax increase is an economic harm in spite of any potential "economic growth" projected. 

[Nima]

I don't think this is very productive.  Your post begs the question: is it the role of the government to grow the economy?  Are Is growing the economy the same as improving the state of the economy?  Is it fruitful to grow the economy by driving profits and job growth that are inherently unsustainable as evidenced by the fact they are not driven by market conditions outside of government "pump priming"?  And so on, and so on....

 

I think only statists have use for particular quantitative methods of measuring "economic growth", anarchists have more use use for qualitative methods of measuring economic conditions

 

Believe it or not: Anarchists, such as myself, do have the same quantitative methods at their disposal as non-anarchists. It's just that many anarchists choose to ignore them.

 

In a fiat money system it IS indeed the government's role to provide for sufficient private sector saving, unless the territory achieves export surpluses, in which case it is foreign governments who deficit spend FOR the domestic private sector.

 

Look at it like a prison: If the government throws people in a prison, it would be necessary for the government to feed those people if they want them to survive. I can observe and recognize this fact, regardless of whether or not I'm an anarchist.

[Nima]

Taxation is theft. How could that be good? I would say stop stealing from people would be a great way to promote economic growth.

 

Tax cuts reduce the theft and leave more net saving to the private sector, which is a necessary (not sufficient) pre-condition for economic growth.

[Nima]

As an example, assessing the legal structures in place that affect economic opportunity.  Quantitative measures will tell us the degree of economic activity, whereas I find it more meaningful to assess the degree of opportunity and freedom to take economic action.

 

A statist will measure and project the quantitative effects of a tax increase and might determine a positive effect will be realized.  An anarchist would make a qualitative determination that the tax increase is an economic harm in spite of any potential "economic growth" projected. 

 

#FalseDichotomy

[Spenc]

#FalseDichotomy

not really, if you're advocating for a temporary blip in an economic statistic at the expense of principle

 

Believe it or not: Anarchists, such as myself, do have the same quantitative methods at their disposal as non-anarchists. It's just that many anarchists choose to ignore them.

 

In a fiat money system it IS indeed the government's role to provide for sufficient private sector saving, unless the territory achieves export surpluses, in which case it is foreign governments who deficit spend FOR the domestic private sector.

 

Look at it like a prison: If the government throws people in a prison, it would be necessary for the government to feed those people if they want them to survive. I can observe and recognize this fact, regardless of whether or not I'm an anarchist.

I agree on the first point.  Anarchists, Austrians, etc. all have the means of quantitative analysis. 

 

I don't think this next point is a truthful claim.  What is sufficient private sector saving?  Nobody knows, especially not you, Trump or any of the people he appoints.  You are encouraging the achievement of a baseless goal, "economic growth" or "jobs" without explaining why it is the priority or ideal pursuit in economic policy.  You're not giving evidence that the private sector should, under the conditions of trade and budget deficits, be handed any additional funds through fiat policy.  This requires qualitative assessment, which is not half of a dichotomy, it is a precursor to engaging in the quantitative analysis.  Or at the least, a means of testing the veracity of a quantitative approach before following through on a quantitatively-approved policy. 

[dsayers]

Tax cuts reduce the theft and leave more net saving to the private sector, which is a necessary (not sufficient) pre-condition for economic growth.

A comes before B comes before C. If you say less theft is a "pre-condition for economic growth," they you accept my claim that no theft would be a great way. The person who hands you a crutch is not benevolent when the reason you need the crutch is because they broke your leg. You're saying being handed is a "necessary" pre-condition for health growth. I'm saying that not breaking people's legs is.

[Nima]

A comes before B comes before C. If you say less theft is a "pre-condition for economic growth," they you accept my claim that no theft would be a great way. The person who hands you a crutch is not benevolent when the reason you need the crutch is because they broke your leg. You're saying being handed is a "necessary" pre-condition for health growth. I'm saying that not breaking people's legs is.

 

If there was no taxation at all, then the money introduced into circulation could not retain its value, and hyperinflation becomes a real possibility, but I agree in that to achieve full resource utilization & employment, it should be as close to no theft at all as possible. For example, there have been early US currencies that lost practically all its value because of a lacking taxation enforcement regime. Look at it more like a bell curve. But it may be conceivable that in some stateless future there will be a monetary system like Bitcoin where tx fees replace taxation altogether.

 

I'm not sure where you think I said anyone is being "benevolent", but just to be clear, benevolence doesn't have anything to do with what I'm talking about.

[dsayers]

If there was no taxation at all, then the money introduced into circulation could not retain its value, and hyperinflation becomes a real possibility,

Fiat money has no value to retain. Hyperinflation is the printing of money (which is also theft by the way) to the point where it's worthless even when its use is forced. Taxation has nothing to do with this.

 

I agree in that to achieve full resource utilization & employment, it should be as close to no theft at all as possible.

Not sure what you're agreeing with as I've not said this. "Possible" is no theft. We cannot stop theft from happening in the absolute, but we can stop pretending that institutionalized theft somehow leads to economic growth.

 

it may be conceivable that in some stateless future there will be a monetary system like Bitcoin where tx fees replace taxation altogether.

 

I'm not sure where you think I said anyone is being "benevolent", but just to be clear, benevolence doesn't have anything to do with what I'm talking about.

Your approach and much of what you say is under the premise that the State is valid. That theft is benevolent. As seen in the statement just before it, where you indicate that theft even needs replacing. In what way would a transaction fee replace theft? Transaction fees are voluntary and in exchange for a service. Which money in and of itself isn't supposed to be.

[Nima]

not really, if you're advocating for a temporary blip in an economic statistic at the expense of principle

 

I agree on the first point.  Anarchists, Austrians, etc. all have the means of quantitative analysis. 

 

I don't think this next point is a truthful claim.  What is sufficient private sector saving?  Nobody knows, especially not you, Trump or any of the people he appoints.  You are encouraging the achievement of a baseless goal, "economic growth" or "jobs" without explaining why it is the priority or ideal pursuit in economic policy.  You're not giving evidence that the private sector should, under the conditions of trade and budget deficits, be handed any additional funds through fiat policy.  This requires qualitative assessment, which is not half of a dichotomy, it is a precursor to engaging in the quantitative analysis.  Or at the least, a means of testing the veracity of a quantitative approach before following through on a quantitatively-approved policy. 

 

I've made a more detailed case, along with quantitative evidence, in this post: https://beinglibertarian.com/balanced-budgets-can-create-unemployment/

 

In a fiat money system the sufficient amount of net private saving is that amount where there's no unemployment, to put it as concisely as possible.

[Nima]

1. Fiat money has no value to retain. Hyperinflation is the printing of money (which is also theft by the way) to the point where it's worthless even when its use is forced. Taxation has nothing to do with this.

 

2. Not sure what you're agreeing with as I've not said this. "Possible" is no theft. We cannot stop theft from happening in the absolute, but we can stop pretending that institutionalized theft somehow leads to economic growth.

 

3. Your approach and much of what you say is under the premise that the State is valid. That theft is benevolent. As seen in the statement just before it, where you indicate that theft even needs replacing. In what way would a transaction fee replace theft? Transaction fees are voluntary and in exchange for a service. Which money in and of itself isn't supposed to be.

 

1. Taxation has EVERYTHING to do with why said fiat money has value, I've explained this in detail here: https://beinglibertarian.com/mmt/

 

2. No, we cannot "stop pretending" that fiat money spending leads to growth, if all available evidence and logic shows us that this is the case under certain circumstances.

 

3. Maybe it would be easier if you quoted from what I actually wrote? Where did I say "the State is valid", or that "theft is benevolent"? I'm not saying any of this. I'm saying that IF a group of people starts a fiat money system by declaring a tax in a certain currency, then they HAVE to inject said money into the economy before people can pay taxes in that money, and they HAVE to leave some money in the private sector (via a government budget deficit), IF they want to allow people to save enough to feel comfortable enough to spend enough to allow for full employment, and all past historical evidence shows us that the private sector does indeed have a propensity to net save. Declaring the tax is the moment when people become unemployed. WHERE AM I ASSUMING BENEVOLENCE OR MORAL VALIDITY IN ANY OF THIS?? Like I said in an earlier comment, think of it like a prison. Let's say the government throws you in prison for no reason. I don't agree with them doing that. But IF they want you to survive they now have to spend money on feeding you. This is a logical, causal connection, I'm not saying any of this is benevolent, or morally justified.

[Dylan Lawrence Moore]

Question for you Nima:

 

With the repetitive Quantitative Easings we've experienced throughout the Obama years, why have we seen a decrease in savings even though the deficit has skyrocketed? Or has there actually been an increase in savings and I'm simply not looking at the data correctly?

 

Assuming deficit has gone up and savings have gone down during the Obama years like I mentioned, what difference would there have to be in Trump's actions to have a positive correlation between government spending and private sector savings?

 

For example, I saw the news recently that Trump canceled a $4bil plane from Boeing for Air Force One. Assuming the government simply doesn't spend that money on something else, that represents $4bil that doesn't go out into society to spend and save with. However, I cannot help but feel that this is a good thing (moral questions aside), because that $4bil was used to cause a massive amount of work and resources to go towards unproductive ends. Are there right and wrong things to spend government money on when it comes to increasing the savings of the private sector?

[dsayers]

1. Taxation has EVERYTHING to do with why said fiat money has value, I've explained this in detail here: https://beinglibertarian.com/mmt/

 

2. No, we cannot "stop pretending" that fiat money spending leads to growth, if all available evidence and logic shows us that this is the case under certain circumstances.

 

3. Maybe it would be easier if you quoted from what I actually wrote?

1. Fiat means backed by nothing, which by definition is valueless. Theft is destruction of individual wealth and therefore, again by definition, is not the preservation of value as was your claim.

 

2. Strawman or moving the goalposts. You've introduced spending here, when I was responding to your claim of theft. You know taxation is theft, right?

 

3. I quoted you just fine. When backed into a corner regarding theft, you started talking about spending. It's indicative of a mental block. Meanwhile, you're painting theft as benevolent, preservative... It glorifies and legitimizes the State. Talking about taxation as if it needs to be replaced with a voluntary version shows a fundamental lack of understanding of what taxation is.

[Nima]

Question for you Nima:

 

With the repetitive Quantitative Easings we've experienced throughout the Obama years, why have we seen a decrease in savings even though the deficit has skyrocketed? Or has there actually been an increase in savings and I'm simply not looking at the data correctly?

 

Assuming deficit has gone up and savings have gone down during the Obama years like I mentioned, what difference would there have to be in Trump's actions to have a positive correlation between government spending and private sector savings?

 

For example, I saw the news recently that Trump canceled a $4bil plane from Boeing for Air Force One. Assuming the government simply doesn't spend that money on something else, that represents $4bil that doesn't go out into society to spend and save with. However, I cannot help but feel that this is a good thing (moral questions aside), because that $4bil was used to cause a massive amount of work and resources to go towards unproductive ends. Are there right and wrong things to spend government money on when it comes to increasing the savings of the private sector?

1. With the repetitive Quantitative Easings we've experienced throughout the Obama years, why have we seen a decrease in savings even though the deficit has skyrocketed? Or has there actually been an increase in savings and I'm simply not looking at the data correctly?

 

Quantitative easing doesn't add net private saving. It's a swap. Someone in the private sector swaps a bond for bank reserves. So the private sector's net position doesn't change as a result of QE. But let's talk about the development of net saving since the crisis of 2008. Due to a shrinking trade deficit, reduced tax revenue (because of the recession), and slightly increased public spending, private net saving has indeed hit multi year record highs since then, which I believe is part of the reason why we haven't seen a recession since 2008: https://beinglibertarian.com/private-sector-saving-recessions/. And here I explain a little more how private sector, public sector, and foreign sector are related by mathematical identity: http://www.economicsjunkie.com/sectoral-balances-and-private-saving/

 

2. Assuming deficit has gone up and savings have gone down during the Obama years like I mentioned, what difference would there have to be in Trump's actions to have a positive correlation between government spending and private sector savings? For example, I saw the news recently that Trump canceled a $4bil plane from Boeing for Air Force One. Assuming the government simply doesn't spend that money on something else, that represents $4bil that doesn't go out into society to spend and save with. However, I cannot help but feel that this is a good thing (moral questions aside), because that $4bil was used to cause a massive amount of work and resources to go towards unproductive ends. Are there right and wrong things to spend government money on when it comes to increasing the savings of the private sector?

 

You're hitting the nail on the head with this question. First of all, more spending is not the only way for government to increase the deficit and thus inject net saving. It can also happen simply via tax cuts. And that's where Trump's proposed tax cuts can make a big difference. In my opinion it is indeed preferable not to spend money on wasteful projects that allocate spending power to corrupt & politically connected people, and to make sure you get them maximum bang for the buck. You just need to make sure taxes (the money they are forcefully taking back out of the private sector's hands) are low enough to account for the reduced spending. These are decisions that are supposed to be made in parliament: the total size of the government, its projects and departments, etc, and then the government can proceed to spend the money into existence to fund those projects. They just need to make sure the total level of taxation accommodates the private sector's demand for net saving, given a certain level of public spending and a certain export surplus (=the other possible way to inject net saving into the domestic private sector).

1. Fiat means backed by nothing, which by definition is valueless. Theft is destruction of individual wealth and therefore, again by definition, is not the preservation of value as was your claim.

 

2. Strawman or moving the goalposts. You've introduced spending here, when I was responding to your claim of theft. You know taxation is theft, right?

 

3. I quoted you just fine. When backed into a corner regarding theft, you started talking about spending. It's indicative of a mental block. Meanwhile, you're painting theft as benevolent, preservative... It glorifies and legitimizes the State. Talking about taxation as if it needs to be replaced with a voluntary version shows a fundamental lack of understanding of what taxation is.

1. Fiat means backed by nothing, which by definition is valueless. Theft is destruction of individual wealth and therefore, again by definition, is not the preservation of value as was your claim.

 

Taxes are what gives fiat money value. Without taxation it has no value indeed. But the imposition of the tax makes almost everyone want the money because almost everyone owes taxes.

 

2. Strawman or moving the goalposts. You've introduced spending here, when I was responding to your claim of theft. You know taxation is theft, right?

 

Yes, taxation is theft, as I've said from the very beginning.

 

3. I quoted you just fine. When backed into a corner regarding theft, you started talking about spending. It's indicative of a mental block. Meanwhile, you're painting theft as benevolent, preservative... It glorifies and legitimizes the State. Talking about taxation as if it needs to be replaced with a voluntary version shows a fundamental lack of understanding of what taxation is.

 

OK, if you're going to claim I said anything about taxes being "benevolent", without actually supplying any evidence or quotes of mine, and then try to Jedi mind shift people into believing you "quoted me just fine", then good luck to you.

[Dylan Lawrence Moore]

 

Quantitative easing doesn't add net private saving. It's a swap. Someone in the private sector swaps a bond for bank reserves.

 

I think you just blew my mind.

 

Let me see if I can get this straight.

 

1. Increased deficit causes increased savings, because that is the method for money creation in the system.

 

2. Banks do not create NET currency within the system, because for every asset created, there is an opposite but equal liability created.

 

You answered my next question before I could ask it, which is: if the private sector defaults on its bank-created loans, wouldn't that mean that extra money was released into the system without the need to pay it back? You're saying that when banks are bailed out from their toxic liabilities by the government (i.e. the private sector is not giving back the money the banks created), because the government is creating money out of thin air by selling bonds, this just converts point #2 above into point #1.

 

i.e. the relationship between the bank and the borrower is total net zero, but the relationship between government and tax payer is total net whatever the deficit is. First, because the reason the borrower defaults on the debt is because he's spent the money and is unable to pay it back, the money floats out into the private sector amongst the tax payers. Second, because the government issues bonds to generate the money used to buy the bad debt from the bank (a bailout), the original loan essentially gets converted into a bond (a swap), held by a bond holder. The end result is a relationship where the tax payer pays the bond holder, exactly the same way the government issues any other bond to create money. Am I getting this right, here?

 

I'm having an intellectual spaz attack. This generates roughly 8 million followup questions that I'm having difficultly to disentangle and present on an individual basis.

 

What is inflation caused by, then? Why did the Weimar Republic hyperinflate and the US hasn't in the last 8 years?

 

Regarding export surplus, how does this inject extra savings into the private sector?

 

For private sector banks, what about the interest charged on loans? Does that create money or take it out of the system (assuming it's paid back properly)?

 

At what point is the government overspending? Does it have any way of differentiating between stupid projects ($4bil for Air Force One plane) and good projects (roads)?

[Nima]

I think you just blew my mind.

 

Let me see if I can get this straight.

 

1. Increased deficit causes increased savings, because that is the method for money creation in the system.

 

2. Banks do not create NET currency within the system, because for every asset created, there is an opposite but equal liability created.

 

You answered my next question before I could ask it, which is: if the private sector defaults on its bank-created loans, wouldn't that mean that extra money was released into the system without the need to pay it back? You're saying that when banks are bailed out from their toxic liabilities by the government (i.e. the private sector is not giving back the money the banks created), because the government is creating money out of thin air by selling bonds, this just converts point #2 above into point #1.

 

i.e. the relationship between the bank and the borrower is total net zero, but the relationship between government and tax payer is total net whatever the deficit is. First, because the reason the borrower defaults on the debt is because he's spent the money and is unable to pay it back, the money floats out into the private sector amongst the tax payers. Second, because the government issues bonds to generate the money used to buy the bad debt from the bank (a bailout), the original loan essentially gets converted into a bond (a swap), held by a bond holder. The end result is a relationship where the tax payer pays the bond holder, exactly the same way the government issues any other bond to create money. Am I getting this right, here?

 

I'm having an intellectual spaz attack. This generates roughly 8 million followup questions that I'm having difficultly to disentangle and present on an individual basis.

 

What is inflation caused by, then? Why did the Weimar Republic hyperinflate and the US hasn't in the last 8 years?

 

Regarding export surplus, how does this inject extra savings into the private sector?

 

For private sector banks, what about the interest charged on loans? Does that create money or take it out of the system (assuming it's paid back properly)?

 

At what point is the government overspending? Does it have any way of differentiating between stupid projects ($4bil for Air Force One plane) and good projects (roads)?

"1. Increased deficit causes increased savings, because that is the method for money creation in the system."

 

That is correct, only I'd clarify that we're talking about NET saving here. (private sector claims on the public sector)

 

"2. Banks do not create NET currency within the system, because for every asset created, there is an opposite but equal liability created."

 

That is correct, only I'd clarify that we're talking about NET saving here, not "NET currency".

 

"You answered my next question before I could ask it, which is: if the private sector defaults on its bank-created loans, wouldn't that mean that extra money was released into the system without the need to pay it back? You're saying that when banks are bailed out from their toxic liabilities by the government (i.e. the private sector is not giving back the money the banks created), because the government is creating money out of thin air by selling bonds, this just converts point #2 above into point #1."

 

It's possible that the borrower defaults on repayment, but the bank essentially eats the cost this may entail, counterbalanced by hopefully lots of performing loans. Furthermore the borrower may face some hardships, loss of collateral, etc. The checking account money created on the loan will remain in the system. This in itself in small numbers I don't see being a big problem, but at one point it MAY create SOME clearing pressure on bank reserves (essentially banks' money, needed for interbank clearing, tax payments, and cash withdrawals). That's why the Fed is always there to lend bank reserves at some interest (a cost to the borrowing bank) if any bank is short and can't obtain them on the interbank lending market, which in turn usually is only the case because the Fed intervened in the first place by draining the system of bank reserves to force the interest rate above zero (where it would naturally be if the Fed hadn't intervened in the first place).

 

"i.e. the relationship between the bank and the borrower is total net zero, but the relationship between government and tax payer is total net whatever the deficit is. First, because the reason the borrower defaults on the debt is because he's spent the money and is unable to pay it back, the money floats out into the private sector amongst the tax payers."

 

That's an interesting point, I guess maybe you could look at it that way, in that that money leaks into private sector net saving, but I'm not sure if it's a statistically relevant amount. Also at some point some bank may have to borrow from the Fed to cover for lack of reserves, so there's then a counter balancing drain of net saving in the form of interest paid to the Fed.

 

"Second, because the government issues bonds to generate the money used to buy the bad debt from the bank (a bailout), the original loan essentially gets converted into a bond (a swap), held by a bond holder. The end result is a relationship where the tax payer pays the bond holder, exactly the same way the government issues any other bond to create money. Am I getting this right, here?"

 

You're now examining the scenario of a bailout for banks that made bad loans. That's not the routine scenario. Routinely banks eat losses from non performing loans, as I described above. Also the government doesn't issue bonds to generate money, it credits private banks accounts.

 

"What is inflation caused by, then? Why did the Weimar Republic hyperinflate and the US hasn't in the last 8 years?"

 

In the following I define inflation as an increase in the aggregate price level. Very briefly, the demand pull inflation that just comes from added demand without matching supply, according to MMT mostly comes from excessive government budget deficits, that is deficits that grow larger than needed to satisfy private sector saving demand. Another important and source of inflation are spot price increases by monopoly suppliers, e.g. Oil. Thereis also routine inflation which I've written about more here: http://www.economicsjunkie.com/alternative-inflation-theories/

 

Regarding Hyperinflation: Weimar Germany was on a gold standard at the time (ironic, isn't it?), and huge foreign gold debts were imposed on the country. So the government had to print money to buy enough gold to pay its debts. Then on top of that France occupied Germany's coal-rich Ruhr Valley in 1923 and siphoned off lots of output, adding further to the upwards price pressure through output shortages.

 

The general response is: Every single hyperinflation in history always has some political causes, such as disastrous wartime situations, and/or occurs when the government's currency is backed by another asset or foreign currency that it cannot itself issue.

 

"Regarding export surplus, how does this inject extra savings into the private sector?"

 

In any fiat money system there are 3 functional sectors: the issuer of the currency, the users of the currency, and users of someone else's currency. In the aggregate, if you achieve an export surplus it just means that some government somewhere is deficit spending for you. I've explained this in a bit more detail here: http://www.economicsjunkie.com/sectoral-balances-and-private-saving/

 

"For private sector banks, what about the interest charged on loans? Does that create money or take it out of the system (assuming it's paid back properly)?"

 

It becomes part of the bank's corporate profit, and is distributed to shareholders or re invested in the business. It doesn't change the private sector's net position.

 

"At what point is the government overspending? Does it have any way of differentiating between stupid projects ($4bil for Air Force One plane) and good projects (roads)?"

 

It's overspending when the deficit grows so large as to go beyond the private sector's demand for net saving, causing demand pull inflation. The parliamentary process, and subcommittees etc., is the only process where the government can decide which projects are stupid and which aren't. The size of the government and what exactly to do are essentially political decisions, not economic ones. Some decide on a smaller public sector than others. MMT economists just say that the government's taxation then needs to be below the agreed upon spending sufficiently to allow for sufficient private net saving and thus full employment.

[dsayers]

Taxes are what gives fiat money value.

Theft "gives" value to the thief. I've already addressed this. Thank you for letting me know this was never a discussion.

[Nima]

Thank you for letting me know this was never a discussion.

I wonder what this pathology is called where people can't help putting words in other people's mouths, while remaining steadfastly blind to everything they actually say. I propose: Strawmanitis? What would you suggest?

[Dylan Lawrence Moore]

I wonder what this pathology is called where people can't help putting words in other people's mouths, while remaining steadfastly blind to everything they actually say. I propose: Strawmanitis? What would you suggest?

I just quit engaging with him.

[rosencrantz]

 In the aggregate, if you achieve an export surplus it just means that some government somewhere is deficit spending for you.

 

This cannot be stressed enough. Every transaction is balanced out. The sum total and sum individual is always (by definition) 0. 

 

See balance mechanics for details  https://en.wikipedia.org/wiki/Balances_Mechanics

[Dylan Lawrence Moore]

 if you achieve an export surplus it just means that some government somewhere is deficit spending for you. I've explained this in a bit more detail here: http://www.economicsjunkie.com/sectoral-balances-and-private-saving/

 

Wouldn't that be foreign currency, though? And doesn't foreign currency have no value in another country, because taxes are not collected using it there?

[Nima]

Wouldn't that be foreign currency, though? And doesn't foreign currency have no value in another country, because taxes are not collected using it there?

If someone buys products in your country from abroad, he has to hand over his foreign currency to the Fed in exchange for newly created bank reserves that the Fed just credits to the buyer's domestic bank account at the current FX rate. The Fed puts the foreign currency in its foreign currency reserve account.

 

In reality there are several layers in between, private banks & dealers, fx agents, who may also hold some of this money, but ultimately it ends up at the Fed as foreign currency reserves.

This cannot be stressed enough. Every transaction is balanced out. The sum total and sum individual is always (by definition) 0. 

 

See balance mechanics for details  

https://en.wikipedia.org/wiki/Balances_Mechanics

 

That's exactly right. The sectoral balance identity is a mathematical identity, it is true by definition, it's not an opinion.

 

This is important because many people are unaware and talk like all countries can achieve budget surpluses and export surpluses simultaneously. For example you see the IMF imposing balanced budget requirements on countries without any regard for this fact. Or look at the EU's famous 3% budget deficit cap that they've all but admitted at this point is nonsense. The anecdote says that at the time French president Mitterand throught the number 3 is a nice number, reminded him of the Holy Trinity. Nobody at the table had any objections to this feat of mathematical and logical genius, and so they went with the magical number 3. Because ideally everyone just achieves balanced budgets all the time anyway, like a household, right?

 

Well, we see now that this has been disastrously crippling for the affected economies and their young unemployed, see Austerity in Europe for example.

[Magnetic Synthesizer]

I'm siding on with Peter Schiff, the traders are hungry for fantasies and will eat anything. I don't know what is worse: watching mainstream hypocrisy or mainstream finances.

 

They say Trump is bad for the economy. But when he gets elected, now he's good! (It's like some are trying to build a psychological ponzi scheme while others are useful idiots acting as a magnifying glass)

 

Here's an example of a contradictory set of beliefs:

 

- Trump will stimulate aggregate demand by increasing the deficit! (expansionary fiscal polic)

-There will be Higher interest rates and they will boost the dollar and/or the economy!

 

You can't both have higher interest rates and stimulus fiscal policy. With the current debt levels, the moment the interest rate increases by a say 4%, your entire budget is going to get sucked out into interest payments.

 

Well unless the market goes full bunkers and somehow pays for it. Don't know where it's going to come from though.

[Nima]

You can't both have higher interest rates and stimulus fiscal policy. With the current debt levels, the moment the interest rate increases by a say 4%, your entire budget is going to get sucked out into interest payments.

Interest rates are under the government's control if they want them to be. They could easily have expansionary fiscal policy and manipulate the risk free rates further upwards if they wanted to.

 

If interest rates go up it only affects the interest payments on newly issued bonds, so current debt levels are irrelevant to assessing budget impact.

 

That having been said, the most common sense approach IMO would be to let the risk free rate go to zero where it would naturally go anyways if the Fed didn't intervene to begin with.

[Magnetic Synthesizer]

If interest rates go up it only affects the interest payments on newly issued bonds, so current debt levels are irrelevant to assessing budget impact.

The us debt is short term, less than a year 6 months. So it does affect the budget.

 

If they lower interest rates they don't get higher interest rates.

 

> risk free rate go to zero where it would naturally go anyways if the Fed didn't intervene to begin with.''

 

bye

[Nima]

The us debt is short term, less than a year 6 months. So it does affect the budget.

No, US debt consists of Bills (~$1.8 trillion), Notes (~$8.6 trillion), and Bonds (~$1.2 trillion):

 

https://www.treasurydirect.gov/govt/reports/pd/mspd/2016/opds112016.pdf

[Magnetic Synthesizer]

No, US debt consists of Bills (~$1.8 trillion), Notes (~$8.6 trillion), and Bonds (~$1.2 trillion):

 

https://www.treasurydirect.gov/govt/reports/pd/mspd/2016/opds112016.pdf

Can you also point my to a reliable source on the semantics of Bills Notes and Bonds? I have my own, but I don't know if it's the ones used there.

[Nima]

Can you also point my to a reliable source on the semantics of Bills Notes and Bonds? I have my own, but I don't know if it's the ones used there.

Should be something like this:

 

Bills 0-1 yrs

Notes 1-10 yrs

Bonds 10-30 yrs

 

I'm sure there is some source but I'm fairly certain because I invest regularly in these types of assets.

 

If you're interested in the avg outstanding maturity, this should be helpful:

 

https://www.quandl.com/data/USTREASURY/AVMAT-Average-Maturity-of-Total-Outstanding-Treasury-Marketable-Securities