7 ms·

Why? As we produce more stuff, we also need to spend more to keep prices stable. Printing money and throwing it at the economy is one way to make that happen.

by Suncho 11y ago

Why? As we produce more stuff, we also need to spend more to keep prices stable. Printing money and throwing it at the economy is one way to make that happen. As long as our rate of spending remains in line with our level of production, we shouldn't see inflation or deflation. Why do we need a balanced budget? If you're Greece and you can't issue your own currency, your national debt matters. But the U.S. can always issue new currency to cover its liabilities. I guess I have a hard time understanding why we should care about the amount of the U.S. national debt.

seoguru 11y ago
Yes! If more people understood this, the world would be a better place. Reminds me of this post on "fiscal conservatives": http://itsthepeoplesmoney.blogspot.com/2014/11/confessions-of-former-fiscal.html http://itsthepeoplesmoney.blogspot.com/2014/11/confessions-o...
- Suncho 11y ago
  Interesting. I like what he says about debt-to-GDP, but I'm not sure I understand his leap to the conclusion that we should be striving for full employment. I understand why we'd want to scale production to meet the increased demand induced by consumers having more money. But if it would be efficient for us to scale up production without creating jobs, why should we create jobs? What is the value of full employment?
  - tom_morrow 11y ago
    traditionally there have been exactly two options available: employment and unemployment, the former being considered preferable.
adventured 11y ago
Because the rate of production never stays in line with the rate of spending; you can't force it to stay inline. If you debase a currency, consumers will typically seek to spend it before it loses more purchasing power, which automatically unbalances your economy because you can't control exports or production in a way that you can match the consumption. We saw this disastrous effect during the 2000s, when the dollar lost a large amount of value due to budget deficits, and the middle class lost a lot of ground as wages failed to outpace the currency devaluation. Why should you care about the US national debt? Because at just ~3.5% interest on that debt, it'll eat up a share of the Federal budget larger than either Social Security or Medicare/Medicaid, at a time in which the US already can't afford its entitlements. Each year that goes by, the US can only afford to pay a lower and lower interest rate on its national debt, and it has to 'print' to cover the deficits today - tomorrow when the red ink on entitlements is greater and the interest costs are greater, the deficit will be greater (projected to explode higher in the near future). That will lead to further devaluation of the dollar, which will further wreck the middle class as it did last decade with the weakened dollar. Exports didn't come even remotely close to making up for the weaker dollar hit last decade, and they won't next time either. The US runs a massive trade deficits, it takes a far worse hit on a weaker currency than it benefits from such. The only large buyer left for US debt, is the Federal Reserve. The US Government is insolvent without monetizing its own debt via the central bank. Once a nation hits that point, it never recovers.
- Suncho 11y ago
  Hmm. I wouldn't characterize what happened in the 2000s as a debasement of the dollar. Real wages have decreased, but shouldn't we want to spend less money on labor as we develop labor-saving technologies and take advantage of cheap foreign labor that substitutes for domestic labor? Why is a trade deficit a bad thing? It means we're sending dollars overseas and other countries are sending us real stuff in return. Sounds like a pretty good deal to me. What's wrong with the fed being the only large buyer for U.S. debt? If the fed holds all our treasury securities, then the interest payments don't really matter, right? Is there any reason why it's bad for this to be a permanent arrangement? I still don't see why an ever-growing deficit is a problem. Do you think it will necessarily lead to inflation? If so, why? When you say that the U.S. can't afford its entitlements, what do you mean by that?
keithpeter 11y ago
"If you're Greece and you can't issue your own currency, your national debt matters. But the U.S. can always issue new currency to cover its liabilities." Hence the antipathy to joining Euro in UK. See the European Exchange Rate Mechanism and Black Wednesday. https://en.wikipedia.org/wiki/Black_Wednesday https://en.wikipedia.org/wiki/Black_Wednesday
jazzyk 11y ago
>Why do we need a balanced budget? Because if you spend more than you make, you are essentially borrowing from the future (with compound interest). Eventually the quickly-compounding interest and principal overwhelm you and you have to spend most of what you produced to service/repay the debt for many years (exactly the situation Greece is in). Printing money without the accompanying increase in goods/services produced is _stealing_ from everyone who has savings using the currency. The unit of currency loses its value, impoverishing the saver. The only sustainable way to prosperity/affluence is through increased productivity, not financial shenanigans.
- Suncho 11y ago
  > Because if you spend more than you make, you are essentially borrowing from the future (with compound interest). Not if you never pay it back. > Eventually the quickly-compounding interest and principal overwhelm you and you have to spend most of what you produced to service/repay the debt for many years If the fed holds the treasury securities, the treasury just pays the interest to the fed. By law, any profits the fed makes go right back to the treasury again. Why would the interest payments be a problem? > (exactly the situation Greece is in) Greece can't issue their own currency. > Printing money without the accompanying increase in goods/services produced is _stealing_ from everyone who has savings using the currency. Right. But I was asking about a scenario in which there would be an accompanying increase in production. > The only sustainable way to prosperity/affluence is through increased productivity, not financial shenanigans. Agreed. But financial shenanigans do have the potential to hurt our prosperity/affluence. Wouldn't preventing the supply of money from growing in line with our productive capacity count as such a shenanigan? We tend to expand credit/debt to keep the economy running and then it all comes crashing down when we start calling our debts back in. THAT is not sustainable. Instead of expanding the amount of credit, why shouldn't we just expand the amount of actual money?
  - jazzyk 11y ago
    >Instead of expanding the amount of credit, why shouldn't we just expand the amount of actual money? So just print more money? I just tried to explain to you that printing money without producing more goods/services just dilutes your purchasing power. The pain caused by _moderate_ inflation is easier to hoist on unsuspecting public, so inflation is typically chosen over bankruptcy (if you control the money printer - Greece is out of luck). >there would be an accompanying increase in production. Easier said than done. The US GDP has been bumping barely above 0 over the past several years, which means we are not producing more. A lot of reasons for it, but one of them is lack of consumption caused by excessive debt of consumers, who are flat out broke (and heavily in debt).

by Suncho 11y ago

seoguru 11y ago

Yes! If more people understood this, the world would be a better place. Reminds me of this post on "fiscal conservatives": http://itsthepeoplesmoney.blogspot.com/2014/11/confessions-of-former-fiscal.html http://itsthepeoplesmoney.blogspot.com/2014/11/confessions-o...

Suncho 11y ago
Interesting. I like what he says about debt-to-GDP, but I'm not sure I understand his leap to the conclusion that we should be striving for full employment. I understand why we'd want to scale production to meet the increased demand induced by consumers having more money. But if it would be efficient for us to scale up production without creating jobs, why should we create jobs? What is the value of full employment?
- tom_morrow 11y ago
  traditionally there have been exactly two options available: employment and unemployment, the former being considered preferable.

adventured 11y ago

Because the rate of production never stays in line with the rate of spending; you can't force it to stay inline. If you debase a currency, consumers will typically seek to spend it before it loses more purchasing power, which automatically unbalances your economy because you can't control exports or production in a way that you can match the consumption. We saw this disastrous effect during the 2000s, when the dollar lost a large amount of value due to budget deficits, and the middle class lost a lot of ground as wages failed to outpace the currency devaluation. Why should you care about the US national debt? Because at just ~3.5% interest on that debt, it'll eat up a share of the Federal budget larger than either Social Security or Medicare/Medicaid, at a time in which the US already can't afford its entitlements. Each year that goes by, the US can only afford to pay a lower and lower interest rate on its national debt, and it has to 'print' to cover the deficits today - tomorrow when the red ink on entitlements is greater and the interest costs are greater, the deficit will be greater (projected to explode higher in the near future). That will lead to further devaluation of the dollar, which will further wreck the middle class as it did last decade with the weakened dollar. Exports didn't come even remotely close to making up for the weaker dollar hit last decade, and they won't next time either. The US runs a massive trade deficits, it takes a far worse hit on a weaker currency than it benefits from such. The only large buyer left for US debt, is the Federal Reserve. The US Government is insolvent without monetizing its own debt via the central bank. Once a nation hits that point, it never recovers.

Suncho 11y ago
Hmm. I wouldn't characterize what happened in the 2000s as a debasement of the dollar. Real wages have decreased, but shouldn't we want to spend less money on labor as we develop labor-saving technologies and take advantage of cheap foreign labor that substitutes for domestic labor? Why is a trade deficit a bad thing? It means we're sending dollars overseas and other countries are sending us real stuff in return. Sounds like a pretty good deal to me. What's wrong with the fed being the only large buyer for U.S. debt? If the fed holds all our treasury securities, then the interest payments don't really matter, right? Is there any reason why it's bad for this to be a permanent arrangement? I still don't see why an ever-growing deficit is a problem. Do you think it will necessarily lead to inflation? If so, why? When you say that the U.S. can't afford its entitlements, what do you mean by that?

keithpeter 11y ago

"If you're Greece and you can't issue your own currency, your national debt matters. But the U.S. can always issue new currency to cover its liabilities." Hence the antipathy to joining Euro in UK. See the European Exchange Rate Mechanism and Black Wednesday. https://en.wikipedia.org/wiki/Black_Wednesday https://en.wikipedia.org/wiki/Black_Wednesday

jazzyk 11y ago

>Why do we need a balanced budget? Because if you spend more than you make, you are essentially borrowing from the future (with compound interest). Eventually the quickly-compounding interest and principal overwhelm you and you have to spend most of what you produced to service/repay the debt for many years (exactly the situation Greece is in). Printing money without the accompanying increase in goods/services produced is _stealing_ from everyone who has savings using the currency. The unit of currency loses its value, impoverishing the saver. The only sustainable way to prosperity/affluence is through increased productivity, not financial shenanigans.

Suncho 11y ago
> Because if you spend more than you make, you are essentially borrowing from the future (with compound interest). Not if you never pay it back. > Eventually the quickly-compounding interest and principal overwhelm you and you have to spend most of what you produced to service/repay the debt for many years If the fed holds the treasury securities, the treasury just pays the interest to the fed. By law, any profits the fed makes go right back to the treasury again. Why would the interest payments be a problem? > (exactly the situation Greece is in) Greece can't issue their own currency. > Printing money without the accompanying increase in goods/services produced is _stealing_ from everyone who has savings using the currency. Right. But I was asking about a scenario in which there would be an accompanying increase in production. > The only sustainable way to prosperity/affluence is through increased productivity, not financial shenanigans. Agreed. But financial shenanigans do have the potential to hurt our prosperity/affluence. Wouldn't preventing the supply of money from growing in line with our productive capacity count as such a shenanigan? We tend to expand credit/debt to keep the economy running and then it all comes crashing down when we start calling our debts back in. THAT is not sustainable. Instead of expanding the amount of credit, why shouldn't we just expand the amount of actual money?
- jazzyk 11y ago
  >Instead of expanding the amount of credit, why shouldn't we just expand the amount of actual money? So just print more money? I just tried to explain to you that printing money without producing more goods/services just dilutes your purchasing power. The pain caused by _moderate_ inflation is easier to hoist on unsuspecting public, so inflation is typically chosen over bankruptcy (if you control the money printer - Greece is out of luck). >there would be an accompanying increase in production. Easier said than done. The US GDP has been bumping barely above 0 over the past several years, which means we are not producing more. A lot of reasons for it, but one of them is lack of consumption caused by excessive debt of consumers, who are flat out broke (and heavily in debt).