The States cant print money...so when they get in trouble the federal government bails them out. The feds can do this because they can rack up debt to the moon through the miracle of central bank purchases of its bonds...with money created by a keyboard. Eventually, everything wrong with the economy ends up as more zeros on the end of the debt clock. Those zeros are like an anaesthetic...they kill the pain...for a while. http://www.usdebtclock.org http://www.bloomberg.com/news/2011-...ikely-5o-of-investors-say-in-global-poll.html
While it is true that individual US states cannot print their own money. We all use the US dollar, a federal reserve note as currency here in the states. It is not true that the federal government automatically bails out each state when they get into trouble. Each state and local government is responsible for their own finances and they can and do on occasion default on their debts. There are two types of state and local government debt, general oblgation bonds and revenue bonds. General obligation bonds are backed by the issuing governments ability to tax. Revenue bonds are backed only by the revenues generated by identifed projects. So if a state or local government/agency defaults on a revenue bond, it is not obligated to use its tax revenues or revenues from other sources to fund the defaulted bond obligation. The last US state to default was the State of Arkansas during The Great Depression. It had to find its way back to fiscal integrity on its own. Additionally, 8 states defaulted on their debt in the century that preceded The Great Depression. You don't have to go back that far in history to find examples of local governent defaults. They do happen and they don't get bailed out by the Federal Reserve or Congress. http://www.nytimes.com/2011/01/23/weekinreview/23davey.html?_r=1 This is a grandiose over simplification, misrepresentation and misunderstanding of the American financial system.
Except that interest rates in the US are not rising. They are going down. We have essentially a negative real interest rates in the US. Your analogy is greatly oversimplified and wrong. You don’t need to be a rocket scientist to figure out that if you spend trillions of dollars on wars, social programs, and tax breaks for the wealthy without raising revenues or reducing other expenses by similar amounts, you are putting those additional expenses on the credit card. It doesn’t take a rocket scientist to figure out that when have no savings and are making $10,000 a month and spending $10,000 a month and then decide to spend $15,000 a month, you are going in debt (i.e. essentially what the Republicans did during the first decade of this century when all branches of government were under their direct control).
You are wrong again Wellwisher, the US doesn’t spend anywhere near the figure you are using to service it’s debt. The real number is less than half the 500 billion you are claiming. http://en.wikipedia.org/wiki/2012_United_States_federal_budget#Total_outlays_by_budget_function You don’t seem to understand that our current woe is not because of government spending. It is because the private sector is not spending, because there is less demand for goods and services. And since you do not understand the problem the rest of your statement here is irrelevant. Where the hell do you get this stuff? It has absolutely no bearing on reality, not to mention being wrong. It doesn’t even make sense!
Thats because the private sector has already spent too much...money it doesnt have. There has been some improvement of late, but the private debt to GDP is still historically WAY too high. Please Register or Log in to view the hidden image!
But the federal govt can? Is that your understanding of how the federal government pays for what it buys? I hear that all the time but I don't know where that idea comes from. If that were true, then the federal govt could clear all of its debt tomorrow by printing the currency and paying it all off. What's wrong with that picture? I haven't kept up with all the state issues to address all their issues. States raise money from income and/or sales taxes - which I assume they have not raised (in general) - but they can also float bond money. And how does the US bail out states? I haven't heard of that happening before. As far as I know, the US didn't rescue California from its various debt and budget crises. Are you talking about QE1/QE2? Those were done to improve liquidity. It was tactical. Transfers at this stage are of course electronic. Now, where does the money printing come in? I feel like there is a misunderstanding about how, when and why new currency is printed. If you like, you can explain this chart: Please Register or Log in to view the hidden image! There have been some huge swings in the M1 supply, but isn't it OK? It shot up (is that QE1/2?) In fact, over time nothing seems wrong with the money supply to me. There's no evidence that the US is printing money here like people say. It's within about 10% of the 1960 level. So what's really going on?* Another thing that came to mind when you brought up the buying back of bonds is this: but tomorrow investors will be lined up to buy US bonds, so the govt is always in a position to sell. In a way, it seems ideal. I just don't see where the problem is. But the US has been in debt practically forever. How is that bad? I'm still not getting any sense of where the problem is. What's the harm? I keep asking but nobody has yet come forward with an answer.* (*That's bolded for other folks to take notice. I appreciate your comments, Carcano. I really would like to hear you or anyone else identify the harm in debt, or explain why people think taxes are rising and money is being fabricated. Where's the evidence? And if there is none, who is spreading this myth and why?)
But interest rates are not rising, Carcano - they've been at 0.00% for US savings bonds, last several times I checked! And bond rates have been at bargain basement percentages when they're been higher. Where does all this appraisal come from? Who is making these claims? They all seem bogus to me!
Yes, the federal government issues the currency. People take a grain of truth and run way too far with it - the fact that the government does sometimes pursue an inflationary monetary policy (which devalues part of the current debt) is just that. It doesn't imply that they "trade green paper for goods" as certain types like to phrase it. That's correct, the federal government could indeed simply print 16 Trillion dollars worth of currency tomorrow and pay off 100% of its debts. That's the advantage of issuing debt in your own currency. The reason they don't do that is that it would cause a ton of inflation, and this would piss off both the voters and the buyers of debt. So the government that did that would get voted out in short order, and also have a lot of trouble borrowing more money in the future. That said, there's nothing to prevent the government from issuing a smaller amount of excess money to dilute the debt, so long as it doesn't cause much inflation or hinder their ability to borrow. And so that's exactly what they've been doing. Lots of the federal stimulus money helps out the bottom lines of states. For example, there was the TANF program where the feds would backstop social programs for poor families. Also stuff like infrastructure spending gets done by disbursing it to state transport agencies for them to do the actual construction. Likewise, various stimulus projects are essentially local and so create a bunch of jobs and spending in certain states, which the state then taxes. That's a plot of change in money supply, so it basically shows something like a ~5-6% annual growth rate over the past 50 years. But, yeah: the question of exactly how much money is "too much" to print at any given time is very complex, and so attracts a lot of meaningless speculation. All the types crying that the monetary policy is way too loose are undercut by the simple observation that inflation remains rather low. As long as inflation remains under control, we'd actually be stupid to back off on the printing presses. If people want to loan you money for free (or even, pay you to loan you their money), you'd be a fool not to take them up on it. Wouldn't you? Exactly. One of the canards that line of criticism relies upon is the idea that the US government can issue debt at whatever rate essentially by fiat. The reality is that US debt is sold into an auction market, and if nobody likes the terms on offer then the government ends up paying a higher rate. This is how places like Greece and Spain are blowing up - the debt market is demanding much higher returns from them. My sense is that people are making the mistake (or, maybe it's an intentional tactic in some cases) of conflating national finances with personal finances. Debt in personal finance follows a specific cycle: you start with no debt, take on some debt early in your career to finance some important stuff (education, house), and then pay that debt down, ending up back with zero debt. And then you die. So, a lot of the rhetoric in question seems to work by assuming that national finances ought to work the same way - that we ought to be steadily paying down the debt with the goal of getting to zero debt, and that any other course represents a fundamentally irresponsible, unsustainable path. But, that raises the question: why should a nation exhibit cyclical finances like an individual? A nation never retires, nor (hopefully) dies, so why does a nation's debt need to get retired? Why shouldn't it continue to grow with the size of the economy in question, indefinitely? Now, it is important that the national debt not get too far ahead of the economy, or borrowing costs will shoot up. But as long as a nation can maintain access to credits at favorable rates, then it is not over-indebted, by definition. One thing to bear in mind is that monetary policy is always a tug-of-war between two different groups with opposed interests: in one corner are younger people and those who depend primarily on work (and not savings), and in the other are older people who depend mostly on their savings. The former group doesn't care much about inflation, but cares a lot about unemployment (and so, favors a loose monetary policy). The latter group doesn't care about unemployment, but cares a lot about inflation (and so favors a tight monetary policy). So, much of the distaste for the current monetary policy is likely to come from retirees who are covetous of the value of their retirement funds, and are perfectly happy with high unemployment (that's just so many more hungry people who will work for peanuts - makes their savings go farther). To the extent that you have any opposition to loose money left to account for after you correct for the age/retirement factor, you will probably notice certain other trends and motivations on a case-by-case basis.
Thats because the federal reserve is buying them from the treasury at rates low enough for the government to afford...and the government cant afford rates higher than near zero. Bonds are sold at auction. Usually auctions seek to find the highest bidder, but in the case of a bond auction the government seeks to find the lowest bidder...a party who will lend them money at the lowest possible rates. If the government cant find bidders who will buy bonds at rates it can afford, the federal reserve steps in and buys them with money created from nothing...with a keyboard. Please Register or Log in to view the hidden image! This is fine as long as deflationary forces counter balance the value of the dollar...but it becomes extremely difficult to control when the velocity of money speeds up to create the inflationary storm of the late 1970s for example. However as Quad pointed out, inflation is good for some and very bad for others.
The economy could not function without some debt...the problem is the quantity of debt relative to production. Banking functions as an intermediary between parties with a budget surplus (savers) and those with a budget deficit (borrowers). There is a healthy sustainable ratio between them...but that line has been crossed a long time ago.
It helps if you use data that is not only correct but relevant. This is what the "Business Insider" has to say about your chart, "Unfortunately, this chart is both technically wrong and analytically meaningless in our view. As such it is arguably the most dangerous piece of propaganda to come out of the current crisis." Read more: http://articles.businessinsider.com...private-sector-investment-banks#ixzz1wsN3WYL8 The correct and relevant data does not support your conclusions.
I'm not sure if you understand what the word evidence means. Also, there's no doubt Corzine's a crook. But, as he has Obama in his pocket, don't expect there to be a formal impartial inquiry. I already told you and Arthur, NOTHING will be done, there will be NO justice and outside of a CONgressional reality TV show Corzine will waddle away cash in hand. Corzine even waddled back to his pig pen, stuck his snout in the trough, and snorted out another $3 MILLION in bonuses AFTER the collapse. Welcome to Fascism Joe - you wanted it, you got it. :shrug: MF Global CEO Jon Corzine Personally Ordered Illegal Raiding of Customer Funds You can't have a trial and judicial evidence presented if you never do a proper investigation. AND NO a few fat CONgressional piglets standing in front of "The Honorable" Corzine Oink Oink Oinking a couple snorts for the TV audience - a proper investigation does not make. Firstly, they would never want to set a precedent as most are in line to rape as much off the public as is humanly... err swinely possible. Second, as if these scum could give two shits about justice. More like JUST US. Corzine is just a fat little bonus-card to be pulled out and used to extract numerous favors from Pawn-bama should he win. Something to be tucked deep into a pocket and pulled out when their bacon is in the pan. I'll stand by my original assertion: A slap on the hand at best... Fascism never had it so good! You should be happy.
I have repeatedly asked you for evidence Michael. You have repeatedly failed to produce it. All you have are unsupported accusations. How do you know that the "memo" you referred to was truthful? You don’t, you need more than that to convict someone Michael. You need evidence “beyond the shadow of a doubt” in order to get a jury to convict. If Corzine is tried without sufficient evidence and found not guilty because of a lack of evidence, Corzine will never go to jail even if he subsequently admitted to guilt. We have a double jeopardy rule in the US Michael. It is rather odd that in this day and age that an insistence on the due process of law and adhering to the Constitution is equated by some to be fascism.
Effective interest rates are determined by the present value of the price paid for bonds when they are sold. The interest rate paid by the US government on its Treasury obligations is something else entirely. The rate reported in the press daily is not the interest rate the US government pays on its Treasury debt. Completely false. The Federal Reserve does not participate in auction of Treasuries and is forbidden by law to do so.
It seems to me you are thinking of this in the reverse of the stated monetary policy. The only reason for the policy is to stimulate the economy to recover from the global economic crisis of 2008-2009, to keep inflation and deflation down, and to keep short and long term interest rates down. Of course those are interdepedent. Here's a 6-minute summary of this by the Fed. It sounds logical to me. But it also seems to fly against what several of you guys are saying here. It explains why they are holding $1.7T per your graph, but the reasons are good ones, not bad. But the value of the dollar is not the leading concern right now, just as debt is not the issue. The issue is growth. Additionally, no medicine is effective on a dead patient. Right now the hemorrhage has been stanched but the patient is still on life support. After he's up and walking would be the time to grapple with debt, money supply, and inflation/deflation issues, don't you think? Besides, when the patient does get on his feet, who will he be blaming - the doctors that revived him, or the drunk driver that careened into him as he was minding his own business walking down the sidewalk? I question the logic that attacks the policies of economists (in general) because they seem to be the good guys in this story. Nowhere in this thread do I see the blame being laid at the bad guys who caused the crash in the first place. If this is truly a question of morality, then how can the sinners and the saints be confused with one another?
They say all those things...but the critical reason is that with government debt at crisis levels they cant afford anything higher than near zero rates. http://www.forbes.com/sites/afontev...-at-2-9t-on-64-increase-in-treasury-holdings/
The crisis is caused by too much public and private debt...and so more debt is not the cure. When households and businesses have too much debt they stop buying stuff and the GDP drops causing a recession. The government's idea of 'life support' is to put someone with cirrhosis of the liver on an IV drip of Jack Daniels! When you have 100,000 of personal debt and the interest payments are cutting into your daily expenditures...is this a good time to sign up for another credit card to pay off your existing credit cards? Or should you simply cut back on spending? There is no cure for too much debt other than austerity.
There is no such thing as 'economists in general'. There are many different schools of thought... http://en.wikipedia.org/wiki/Schools_of_economic_thought#Modern_schools The 'bad guys' imo are BOTH public and private institutions. At the core of the matrix is ethics...or the lack thereof.
http://www.moneynews.com/Headline/fed-debt-Treasury/2012/03/28/id/434106 "The Federal Reserve is propping up the entire U.S. economy by buying 61 percent of the government debt issued by the Treasury Department, a trend that cannot last, Lawrence Goodman, a former Treasury official and current president of the Center for Financial Stability, writes in a Wall Street Journal opinion article published Wednesday."
Joe, there's that pesty internal memo. You know, where Corzine gave a direct order to move funds from a customer account to meet an overdraft. Oh, but don't let the facts stand between you and reality. Not that you care about see about justice being done. All you know is Corzine is Obama's biggest campaign contributor and if all that dirty money can help Bush-Bama win another election. All the better. It should be noted: Not only did Corzine STEAL from American Farmers, salt of the earth, he then had the gall to shove his fat snout back into the trough and snort out MILLIONS more in "bonuses" AFTER he collapsed this 150 year old company. The real question you should be asking yourself is why are you defending scum like Corzine? So, the next time you ask for evidence go to the numerous links I provided and again read the memo from the CONgressinal reality show where it explicitly states Corzine gave a direct order to move funds from a customer account to meet an overdraft. You ask how do we know it's real? Well, normally this is where an investigator comes in. But, thanks to having his Bitch Obama in his pocket - there will be NO formal impartial investigation and the people who could have easily been given immunity and testified against Corzine where NOT given immunity and will not be given immunity and it's all going to be swept right under the God damn rug. Don't worry Joe, QE4, QE5, QE6, and then there'll be tariffs and price fixing and then politicians will resort to what they always resort to - War.... With Aliens if that douche Krugman has his way.
