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View Diary: How to be the Smartest Guy in the Room (154 comments)

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  •  this makes zero sense. (2+ / 0-)
    Recommended by:
    Pluto, oceanview
    Deficit spending could create inflation:
    Yes, it could, if we were already at full employment competing to buy expensive stuff....
    could someone explain this to me?

    setting the stage for the modern conservative

    by MWV on Sun Mar 03, 2013 at 07:17:48 PM PST

    •  Deficit spending is spending more than you take in (43+ / 0-)

      effectively, increasing the amount of money in circulation.

      But, when the country is not at full employment and demand for goods is not at the capacity of manufacturers to supply, then additional money does not create inflation.

      Inflation occurs when the demand supersedes the supply of goods and services.  We are nowhere near full employment nor exceeding manufacturing capacity, therefore, we have no overall inflation.

      We wouldn't need to deficit spend (as much) if we were at full employment, manufacturers and suppliers were at full capacity, etc, because tax revenues would be higher and fewer government payments for unemployment support, etc, would be necessary.

      "The law is meant to be my servant and not my master, still less my torturer and my murderer." -- James Baldwin. July 11, 1966.

      by YucatanMan on Sun Mar 03, 2013 at 07:29:12 PM PST

      [ Parent ]

    •  Competition for goods is what causes inflation (30+ / 0-)

      ...says the author.

      He uses the example of World War II

      If the government was competing for resources in an economy where no excess existed–that might drive up prices (just as it would have in World War Two had it not been for wage and price controls and rationing).
      Massive amounts of money in the hands of all the people would also cause competition for goods and drive prices up. There's one problem we certainly don't have -- given lack of jobs and rampaging income inequality.

      Still, inflation is a tricky piece of business.



      Denial is a drug.

      by Pluto on Sun Mar 03, 2013 at 07:29:39 PM PST

      [ Parent ]

      •  I guess the simplicity threw me off (8+ / 0-)

        What happens as unemployment drops and demand rises though? Is money just put out of circulation?

        setting the stage for the modern conservative

        by MWV on Sun Mar 03, 2013 at 07:48:25 PM PST

        [ Parent ]

        •  That's how the Feds figure it. (11+ / 0-)

          They claim to have some sort of dollar vacuum cleaner standing by.

          That's where I get lost.



          Denial is a drug.

          by Pluto on Sun Mar 03, 2013 at 07:53:18 PM PST

          [ Parent ]

          •  as i (mis?)understand: money disappears (12+ / 0-)

            as debts get paid off, which all ultimately goes to Banks. The Banks (Fed?) simply doesn't lend that money out again. It sits in reserve, instead of circulating.


            We live in a nation where doctors destroy health; lawyers, justice; universities, knowledge; governments, freedom; the press, information; religion, morals; and our banks destroy the economy. -- Chris Hedges

            by Jim P on Sun Mar 03, 2013 at 08:25:39 PM PST

            [ Parent ]

            •  Well, that makes sense (6+ / 0-)

              ...in a way. But how would you get private banks to restrict lucrative lending? Duct tape?



              Denial is a drug.

              by Pluto on Sun Mar 03, 2013 at 08:39:27 PM PST

              [ Parent ]

              •  That's the part I don't get. (5+ / 0-)
                Recommended by:
                Pluto, Chi, Laconic Lib, Joieau, FarWestGirl

                Plus what stops any of them from saying "hmmm, our reserves are greater by $1 so now we can lend out $9 more."

                It must be that Invisible Middle Finger, er, Hand of the Marketplace that stops it, is all I can figure.


                We live in a nation where doctors destroy health; lawyers, justice; universities, knowledge; governments, freedom; the press, information; religion, morals; and our banks destroy the economy. -- Chris Hedges

                by Jim P on Sun Mar 03, 2013 at 08:54:11 PM PST

                [ Parent ]

                •  Either (5+ / 0-)
                  Recommended by:
                  Jim P, millwood, Chi, ferg, YucatanMan

                  1) The Fed increases the rate it charges to lend money pays banks to park their money in the Reserve
                  2) The Fed increases the reserve requirement
                  3) People have enough money/things and so stop borrowing
                  4) The government pays off all of its debt and starts saving the money for a rainy day.

                  Obviously option 4 has not and probably will not happen in any of our lifetimes.

                  •  At the state level, #4 happens. At the Federal (4+ / 0-)

                    level, Clinton had balanced the budget and created a surplus.  When Bush cut taxes, he pulled the rug out from under a balanced budget and reducing the debt.  

                    Otherwise, the total US debt held would be still be on its way down today.  Bush really stuck it to the country.

                    "The law is meant to be my servant and not my master, still less my torturer and my murderer." -- James Baldwin. July 11, 1966.

                    by YucatanMan on Mon Mar 04, 2013 at 10:31:00 AM PST

                    [ Parent ]

                    •  Don't Blame Bush (0+ / 0-)

                      The Republicans wrote and passed the laws that destroyed the budget surplus and created a record deficit after inheriting a surplus.

                      It's a minor point to say that some Dems voted for it, too. It was a Republican move, and Bush was simply in line with it and signed all the budget killers.

                      Bush is gone; the party of the Deficit Doves is still with us, much to our horror.

                      A Southerner in Yankeeland

                      •  Don't blame Bush? I'm sorry, but I don't get it. (0+ / 0-)

                        He gave speeches demanding that taxes be lowered.
                        He campaigned on tax cuts.  
                        He said "This money belongs to Americans, not the government!"
                        His tax cut program was passed by Congress. Twice.

                        How is this a "don't blame Bush" moment?  I don't follow you.

                        Big tax cuts seemed quite reasonable in 1999 and 2000, when Bush was campaigning for his first term as President and talking up cuts to fend off challenges from fellow Republican Steve Forbes and, later, Democrat Al Gore. The U.S. was running budget surpluses and paying down the national debt.

                        On the stump, Bush made an argument with obvious appeal: If the government was taking in more money than it needed, it should let Americans keep more of what they earned. And if tax cuts kept government from growing, so much the better. Hubbard recalls devising the 2001 tax cut in huddles with fellow advisers Lawrence B. Lindsey, who went on to head the National Economic Council, and Hoover Institution scholars John Cogan and John Taylor.

                        So confident was Bush in his tax cut, which he signed that June, that he predicted that even after reducing rates the U.S. would be able to pay off nearly $1 trillion in debt over the coming four years. That August, at his ranch in Crawford, Tex., first-termer Bush called the shrinkage of the surplus "incredibly positive news" because it would create "a fiscal straitjacket for Congress."

                        "The law is meant to be my servant and not my master, still less my torturer and my murderer." -- James Baldwin. July 11, 1966.

                        by YucatanMan on Mon Mar 04, 2013 at 01:55:30 PM PST

                        [ Parent ]

                        •  What Bothered Me (0+ / 0-)

                          What bothers me is people blaming Bush, and now that he's gone it seems that the person to blame is also gone.

                          There's no doubt he was a bad guy, but the blame, I think, needs to be directed at the Republican Party, of which he was the temporary leader. He's gone, but they're not. He and they believed the same things. They proposed and passed a lot of Acts, Rules and Programs that attempted to destroy the country.

                          And they're still here, still doing the same things they did in conjunction with him. Blaming "Bush", as guilty as he was, seems to let the Republicans off the hook and they were just as guilty and are still trying to destroy us.

                          No doubt he was the worst president ever. But that congress was the worst congress ever, and many of them are still in power today. And W may not be spreading their poison, but Republican Senators and Representatives still are.

                          Sorry I wasn't clearer in my post.

                          A Southerner in Yankeeland

                          •  I don't think anyone on this website lets (0+ / 0-)

                            republicans "off the hook."  It's plain what they are doing.  But there is no question that the tax cuts were part of the Bush program from day one.  Bush is still there to blame as well as all the republicans who go along with today's obstructionism.

                            "The law is meant to be my servant and not my master, still less my torturer and my murderer." -- James Baldwin. July 11, 1966.

                            by YucatanMan on Mon Mar 04, 2013 at 06:49:44 PM PST

                            [ Parent ]

                          •  I feel quite comfortable and justified in (0+ / 0-)

                            blaming Bush.

                            And his vice, The Dick.

                            *There are two sides to every horseshit.* Kos

                            by glorificus on Mon Mar 04, 2013 at 10:19:16 PM PST

                            [ Parent ]

                    •  In so many, many ways. ::sigh:: n/t (1+ / 0-)
                      Recommended by:
                      YucatanMan

                      Information is abundant, wisdom is scarce. ~The Druid.
                      ~Ideals aren't goals, they're navigation aids.~

                      by FarWestGirl on Mon Mar 04, 2013 at 02:16:59 PM PST

                      [ Parent ]

                    •  That the problem, we're stuck in a vicious cycle- (1+ / 0-)
                      Recommended by:
                      Pluto

                      Republicans take office and crash the economy, destroy the budget, and shred the social programs to the best of their ability.

                      Democrats come in behind them, clean it up, and then get complacent and we start all over again, falling a little further behind each time.

              •  Crash the markets? (0+ / 0-)

                Threaten future profits with regulation or competition. Bust trusts.

                With a sensible public/private mix in an economy this would not be necessary, but our private sector is totally off the leash and demands to be serviced, and given that situation we need more active measures.

                This makes me wonder if the Master's of the Universe are addicted to the resetting of their playing field. It's like a new game of Monopoly every 5-10 years. Must be rather exciting and invigorating.

                Democracy - 1 person 1 vote. Free Markets - More dollars more power.

                by k9disc on Mon Mar 04, 2013 at 10:26:00 PM PST

                [ Parent ]

          •  That's what the whole "fed sets interest rates"... (6+ / 0-)

            thing is about. When the economy heats up and people start overspending (risking inflation or stupid investing that causes bubbles), the fed raises both the interest rate it charges on loans and pays on fed accounts, increasing cash parked in fed accounts and decreasing cash borrowed, leaving less available for loans (since the banks borrowing from the fed are the ones we and the businesses that (over)invest borrow from).

            "The Democratic Party is not our friend: it is the only party we can negotiate with."

            by 2020adam on Sun Mar 03, 2013 at 10:11:49 PM PST

            [ Parent ]

          •  The Fed sells securities... (12+ / 0-)

            held on its balance sheet in exchange for cash; after the sale, the cash proceeds are removed from circulation.  Open market operations, basically the reverse of quantitative easing.

            Consider as well that these concerns about inflation pre-suppose a return to full employment, i.e., a tight labor market where people are finding jobs, getting raises, quitting for better opportunities, etc.  A higher inflation rate---if indeed one were to come---is a small price to pay for that improvement in our collective well-being.

          •  The vacuums are taxes and bonds (4+ / 0-)

            Both of these control reserves by either sequestering (bonds) them of destroying (taxes) them. Control of the reserve balances allows the Fed to set the overnight funds rate which in turn forms the basis of the longer bond yields when combined with inflation expectations. The reason interest rates are so low is we have not expectation of significant inflation.

            As the Federal Gov reduces deficits the flow of NET FINANCIAL ASSETS (NFA) into the private sector disappears. The private sector cannot create NFA - they have to come from either the Government or the foreign sector. Without inflow of NFA an economy can only grow by expanding debt. During the Clinton surplus years the private debt skyrocketed on fictitious profits from the dotcom and housing bubbles. Since households and firms cannot print their own money, this process becomes somewhat akin to starvation. Once the fat is gone, you start dismantling the muscle and sinew. Then the organs begin to fail. And here we are.  

          •  As the economy improves, deficit spending should (1+ / 0-)
            Recommended by:
            Pluto

            fall, reducing the amount of money in circulation.

            Deficit spending increases money supply circulating.

            Reducing deficit spending during a recession could crash the economy, because basically, only the Federal government can deficit spend.  States - most all of them - have constitutional requirements to have a balanced budget.

            With better economy, better employment, higher demand for goods and services, tax revenues rise (unless an idiot like George W Bush cuts taxes) and deficit spending decreases (or should if politicians have any sense).

            "The law is meant to be my servant and not my master, still less my torturer and my murderer." -- James Baldwin. July 11, 1966.

            by YucatanMan on Mon Mar 04, 2013 at 10:27:20 AM PST

            [ Parent ]

            •  Americans have been deficit spending (0+ / 0-)

              ...for thirty years as their salaries continue to shrink and prices rise.

              Government spends money in the economy whether it comes from taxes or the printer. A stronger economy cuts deficits without an increase in tax rates.

              Too many contradictory factors to come up with a single scenario.



              Denial is a drug.

              by Pluto on Mon Mar 04, 2013 at 04:34:57 PM PST

              [ Parent ]

          •  The vacuum cleaner you are (0+ / 0-)

            thinking of is called taxes.  Government spending adds money to the economy and taxes take it back out.  Now before you get all worried that I am some sort of teaparty nut, consider that we are a currency issuer.  No money exists until the government spends it into the economy.  If too much money is in the system then we get inflation (We aren't even close to that by the way).  The problem with our tax code now is it often rewards the bad things and taxes the good things.  We should have low taxes right now with high unemployment and an output gap in manufacturing.  For instance, rewarding oil companies with subsidies doesn't give them the incentive to move into renewables.  Why should they?  If they were highly taxed on fossil fuels and given generous tax subsidies on renewables, you can bet Koch suckers would get into the renewable business so fast your head would spin.

            Loyalty to petrified opinion never yet broke a chain or freed a human soul in this world--and never will. Mark Twain

            by whoknu on Mon Mar 04, 2013 at 07:15:53 PM PST

            [ Parent ]

        •  No, that's when money becomes less valuable (0+ / 0-)

          (i.e., it takes more dollars to buy the same thing) - which is inflation.  People need/want higher wages to buy seemingly more expensive things.

          Hey, Republicans, the whole world is watching.

          by TAH from SLC on Mon Mar 04, 2013 at 10:16:09 AM PST

          [ Parent ]

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