How will the US pay back its debt? - Page 8 - Politics Forum.org | PoFo

Wandering the information superhighway, he came upon the last refuge of civilization, PoFo, the only forum on the internet ...

Everything from personal credit card debt to government borrowing debt.

Moderator: PoFo Economics & Capitalism Mods

#15172490
late wrote:"But nothing like that has happened in the U.S., even during periods when monetary aggregates like M2 have increased dramatically. Anyone claiming that big increases in M2 presage surging inflation was wrong again and again since the 1980s. I mean really, really wrong" Krugman

See my post above for more.

Also:

"Spikes in inflation aren’t a new thing. There was huge inflation during World War I; there were bursts of inflation during World War II, after the war when price controls were lifted, and again during the Korean War. However, all of these inflation surges were brief. It wasn’t until the 1970s that we got an extended period of high inflation.

Why do I suspect that this time will be different? Mainly because the pandemic had weird economic effects, sharply depressing some activities while boosting others. And this probably means that we’re going to have a weird recovery too, with huge surges in things like travel, plus an unusual set of bottlenecks, like the global container shortage, resulting from the pandemic hangover.

This doesn’t mean that we should discount inflation risks entirely. It does mean that we’ll need to kick the tires on whatever inflation readings we get, and try, as objectively as possible, to figure out whether or not they’re actually reason for concern."

https://www.nytimes.com/2021/04/16/opinion/economy-inflation-retail-sales.html?searchResultPosition=4


MMT is correct in the sense that the US can't bankrupt itself and can create money on demand. Historically inflation has been controlled by raising interest rates which might not be an option this time given there is an awful lot of businesses and people relying on low interest rates just to survive. In 2008 the money was already in the market given it was created by toxic loans and QE merely transferred the liability, you have just dumped 2tn into the market which you have never done before and we are currently seeing inflation rising. Why are you comparing times of yesteryear when they aren't the same? Today is very much like the 70s than anything post it, yet you mention the 80s onwards. Why? Because the 70s had double digit inflation and that upsets your narrative.
#15172511
B0ycey wrote:
Today is very much like the 70s than anything post it, yet you mention the 80s onwards. Why? Because the 70s had double digit inflation and that upsets your narrative.



That was Krugman that wrote that.

The economy was different back then. Were you the one determined to freak out over inflation?
#15172514
B0ycey wrote:MMT is correct in the sense that the US can't bankrupt itself and can create money on demand. Historically inflation has been controlled by raising interest rates which might not be an option this time given there is an awful lot of businesses and people relying on low interest rates just to survive. In 2008 the money was already in the market given it was created by toxic loans and QE merely transferred the liability, you have just dumped 2tn into the market which you have never done before and we are currently seeing inflation rising. Why are you comparing times of yesteryear when they aren't the same? Today is very much like the 70s than anything post it, yet you mention the 80s onwards. Why? Because the 70s had double digit inflation and that upsets your narrative.


Sir, some history.
1] In 1971 Nixo took the world off the gold standard, and made the dollar a full fiat currency.
2] This all-by-itself caused inflationary expectations, because most economists and most people thought that the backing of gold was *necessary* to have a stable currency. Some still think this.
3] Perhaps, this caused OPEC to raise the price of oil.
4] Raising the price of oil, certainly caused inflation in the 70s.
5] When Reagan took office the US national debt was about exactly $1 T. Now,it is about $25 T. Reports vary, so I say "about".

I started with the 80s because that was when the raw size of national debt took off. Since Reagan, the debt has grown to something like $25 T, now; from about $4T. This is a 625% increase in the 32 years since 1989 added to the 400% increase under Reagan. Before 1981 the rate of increase was far, far less.
. . . So, IMHO the year 1981 marks a turning point in the curve of the US national debt. This makes it an excellent place to draw a line between before and after this year.

Note, how I explained the inflation of the 70s, and note, that it had nothing to do with a really high (like post 1981) rate of growth in the US national debt. Perhaps, it did have something to do with the accumulation in the debt over the time from 1939 to 1970.
. . . However, IMHO, it was mostly the result of the turbulent times that followed the end of the gold standard. That is, it took time for people to realize that fiat curriences work just fine without any gold backing them.
.
#15172532
late wrote:That was Krugman that wrote that.

The economy was different back then. Were you the one determined to freak out over inflation?


Not really late. Just posting a POV that lockdowns have consequences. Besides we are seeing inflation. Should I just bury my head and pretend that isn't happening like you?
#15172534
Steve_American wrote:Sir, some history.
1] In 1971 Nixo took the world off the gold standard, and made the dollar a full fiat currency.
2] This all-by-itself caused inflationary expectations, because most economists and most people thought that the backing of gold was *necessary* to have a stable currency. Some still think this.
3] Perhaps, this caused OPEC to raise the price of oil.
4] Raising the price of oil, certainly caused inflation in the 70s.
5] When Reagan took office the US national debt was about exactly $1 T. Now,it is about $25 T. Reports vary, so I say "about".

I started with the 80s because that was when the raw size of national debt took off. Since Reagan, the debt has grown to something like $25 T, now; from about $4T. This is a 625% increase in the 32 years since 1989 added to the 400% increase under Reagan. Before 1981 the rate of increase was far, far less.
. . . So, IMHO the year 1981 marks a turning point in the curve of the US national debt. This makes it an excellent place to draw a line between before and after this year.

Note, how I explained the inflation of the 70s, and note, that it had nothing to do with a really high (like post 1981) rate of growth in the US national debt. Perhaps, it did have something to do with the accumulation in the debt over the time from 1939 to 1970.
. . . However, IMHO, it was mostly the result of the turbulent times that followed the end of the gold standard. That is, it took time for people to realize that fiat curriences work just fine without any gold backing them.
.


Right, I am going to explain something to you being you seem to ignore one key aspect of my argument and quite frankly one key aspect of MMT. I have not once said I am worried about the size of the national debt. I have not once said we shouldn't be borrowing. And not once have I said we have to pay it back the debt with a surplus economy. Why? Because of MMT. What I have said is that currently we have no plan on taxation to draw that borrowing back and the money created was not for growth but to close down the economy. MMT considers currency in circulation money that has not been collected via taxation. To control inflation you need to tax. We are seeing inflation. Increased money supply allows consumers to bid up prices. We have printed free money. We now have a shortage in supply. Why can you not see that MMT would actually explain right now why we are seeing inflation rather than keep on using it as an example to why we haven't shook the money tree enough. :roll:
#15172557
B0ycey wrote:Right, I am going to explain something to you being you seem to ignore one key aspect of my argument and quite frankly one key aspect of MMT. I have not once said I am worried about the size of the national debt. I have not once said we shouldn't be borrowing. And not once have I said we have to pay it back the debt with a surplus economy. Why? Because of MMT. What I have said is that currently we have no plan on taxation to draw that borrowing back and the money created was not for growth but to close down the economy. MMT considers currency in circulation money that has not been collected via taxation. To control inflation you need to tax. We are seeing inflation. Increased money supply allows consumers to bid up prices. We have printed free money. We now have a shortage in supply. Why can you not see that MMT would actually explain right now why we are seeing inflation rather than keep on using it as an example to why we haven't shook the money tree enough. :roll:


My answer to that question is, because Prof. Bill Mitchell is still pushing for more spending in US and his nation of Australia.

Other people have joined the threads and are worried about the national debt being a brden on our grandchildren.
#15172559
B0ycey wrote:
Not really late. Just posting a POV that lockdowns have consequences.

Besides we are seeing inflation.

Should I just bury my head and pretend that isn't happening like you?



No shit.

Thank you Capt Obvious.

Krugman was arguing that it's temporary,and that the Fed can do their job.

"I haven't seen people make this point: In the overheating debate, MMTers, at least if they're consistent with their own doctrine, are substantially to the right of people like me. Because I say, "Look, if the stimulus that comes out of the rescue plan is too big, that's okay. The Fed can tighten monetary policy and prevent an inflationary problem."

But the MMTers don't seem to believe that monetary policy can ever be used for anything useful."

https://www.businessinsider.com/paul-krugman-interview-inflation-mmt-government-stimulus-spending-economic-recovery-2021-5
#15177166
It is too bad that we can't bet that the US national debt will never be paid off.

I'm so certain that I'm right that I would bet each and everyone of you, $1,000 at 1,000 to 1 odds that it will never be paid off with money pulled from the current supply of money. That is, by having a real surplus and using the surplus dollars to pay off the bonds as they come due.

You see, Pres. Clinton didn't have a real surplus because he took some items off the budget to have his claimed surplus. At least mostly. And. his 'surplus' still led to a recession know as the dot com bubble.

The only wat to pay off the US national debt is to create dollars out of thin air to pay off the bonds. This would be bad to very bad for 2 reasons.
1] Insurance comps.,etc. need US bonds to save for when the must pay claims. Pension plans also need US bonds.
2] I predict that adding $25 trillion in cash into the economy would not be good for avoiding inflation.

So, it's a very good thing that there is no reason to pay off the debt. Everyone who knows what reality is, knows that saying we will have to pay off the debt someday is blowing smoke up the people's ass.
.
#15177175
B0ycey wrote:Huge difference between paying off debt and excess/increasing the debt @Steve_American. Has anyone actually argued the debt needs to be paid off?


Yes, people here have.
IIRC, Puffer Fish has said that.

Yes, there is a huge difference between paying off and increasing the debt.
OTOH, it is a small thing to increase it $500B/year and balance it.

Remember the Fed. controls the interest rate. The US never needs to ever pay a high interest rate again.
.
Last edited by Steve_American on 17 Jun 2021 10:12, edited 1 time in total.
#15177177
Steve_American wrote:Yes, people here have.
IIRC, Puffer Fish has said that.

Yes, there is a huge difference between paying off and increasing the debt.
OTOH, it is a small thing to increase it $500B/year and balance it.


Is the FED balancing it? Although borrowing was significantly more than $500B given it has been $3tn last year with a recovery fund of over $2tn planned in the future I might add. Although from my recollection, Pufferfish wasn't asking for the debt to be paid off but that mass borrowing stops. I would perhaps add to that, that mass borrowing is part of the cause for the current inflation we are seeing and that we need a plan to reduce spending in the future to a slight surplus, or risk another financial crisis by the end of the decade. Would you put your $1000 on a 1/1000 against on that?

Remember the Fed. controls the interest rate. The US never needs to ever pay a high interest rte again.
.


Sure. But it should shock you that the FED is bringing forward the date for an interest rate hike to counter inflation once the economy fully opens up and that many businesses are also in risk with that rate hike - which will cause another problem to the economy if those businesses go under. And this has all been caused by mass borrowing. What does MMT say about that?
#15177184
B0ycey wrote:Is the FED balancing it? Although borrowing was significantly more than $500B given it has been $3tn last year with a recovery fund of over $2tn planned in the future I might add. Although from my recollection, Pufferfish wasn't asking for the debt to be paid off but that mass borrowing stops. I would perhaps add to that, that mass borrowing is part of the cause for the current inflation we are seeing and that we need a plan to reduce spending in the future to a slight surplus, or risk another financial crisis by the end of the decade. Would you put your $1000 on a 1/1000 against on that?



Sure. But it should shock you that the FED is bringing forward the date for an interest rate hike to counter inflation once the economy fully opens up and that many businesses are also in risk with that rate hike - which will cause another problem to the economy if those businesses go under. And this has all been caused by mass borrowing. What does MMT say about that?


I'm not a real MMT expert, but my understanding is that MMTers would say ---
1] Raising interest rates to fight inflation doesn't work. That is, the real world evidence is that, because it is indirect, it often doesn't work. It is indirect because higher interest rates reduce investment, this slowly increases unemployment, and this then reduces the inocme of the bpttom 1/3 of the workforce. However, inflation is more caused by spending made by the middle 1/3 or by the top 2/3.
2] MMTers would say that to reduce the incomes of the top 2/3 would work better. The Gov. could do this with a surtax increase in the income tax rate and increased withholding to start immediately or soon. The Gov. could also reduce deficit spending that ends up going to the top 2/3 more than the bottom 1/3.
. . . Remember, MMTers want to aim the pain at the people who are driving up the prices and not just cause genreralized pain and HOPE that it is enough to do the job. I'm sure that the top 2/3 will hate this idea, but causing unemployment in the bottom 1/3 will not stop inflation if it is spending by the top 2/3 that is the direct cause of the inflation. Thus, the MS economic theory says that to reduce inflation the Fed. should cause unemploymnet in the bottom 1/3 of the people because they have no power. And it basically doesn't care that this plan is doomed to fail because inflation is rarely caused by excess spending by the bottom 1/3 of earners.

PS The $2T in infrastructure, etc. is spread out over 8 to 10 years. So, $2T / 10 = $500B. So, I admit my estimate was too low.

.
Last edited by Steve_American on 17 Jun 2021 13:00, edited 1 time in total.
#15177188
Steve_American wrote:I'm not a real MMT expert, but my understanding is that MMTers would say ---
1] Raising interest rates to fight inflation doesn't work.


I doubt any MMTer would say it wouldn't work given it does work and has been used thoughtout post WW2 to control inflation, most notably in the 70s. It reduces what people can spend whilst also encouraging savings, two major causes of inflation in a high demand low supply economy - especially true right now FYI.

Nonetheless what they (MMTers) might say is that interest hikes aren't an option today given we have too many people and businesses who rely on low interest rates just to survive - which would cause a depression if enough people default on their debts and jobs are lost down the line.

At this moment in time there is no good option the FED can take right now to control inflation but to reduce borrowing so things in terms of inflation issues don't get worse or cross there fingers and hope they are right that inflation will be temporary once production builds up. That is just an inconvenience truth right now that you seem to not see it seems.

2] MMTers would say that to reduce the incomes of the top 2/3 would work better.


I would say EVERYONE in economics would say this is something that should be executed, not just those in MMT. But most people would say this is a method to balance the books without cutting services rather than a method to borrow more.
#15177224
B0ycey wrote:I doubt any MMTer would say it wouldn't work given it does work and has been used thoughtout post WW2 to control inflation, most notably in the 70s. It reduces what people can spend whilst also encouraging savings, two major causes of inflation in a high demand low supply economy - especially true right now FYI.

Nonetheless what they (MMTers) might say is that interest hikes aren't an option today given we have too many people and businesses who rely on low interest rates just to survive - which would cause a depression if enough people default on their debts and jobs are lost down the line.

At this moment in time there is no good option the FED can take right now to control inflation but to reduce borrowing so things in terms of inflation issues don't get worse or cross there fingers and hope they are right that inflation will be temporary once production builds up. That is just an inconvenience truth right now that you seem to not see it seems.



I would say EVERYONE in economics would say this is something that should be executed, not just those in MMT. But most people would say this is a method to balance the books without cutting services rather than a method to borrow more.


Well, you would be wrong. Prof. Bill Mitchell said as much in the last week. That is, that monetary policy never worked that well.
I don't think that the 70s are an example of how raising interest rates controlled inflation. It seemed to me as I lived thru it, that inflation kept getting higher for years.

MMT says tht taxes destroy diollars, while Gov. spending creates them. So, either reducing the deficit or even having an actual surplus reduces the groth of total national income.
When inflation is going fast and still growing, people will not save. I remember that in Germany in about 1921, men demaned to be paid at noon because by 5 pm prices would have increased. This is an extreme example. But, saving/savings in the 70s never paid a higher interest rate as the rate of inflation.

Please explain just how raising interest rates reduces what people can spend, when they already have the dollas in their hands. AFAIK, you are saying that all that Gov. spending had already put too many dollars in the hands of too many people. So, we just disagree on the claim that raising interest rates will supress spending by people who already have the dollars to spend.

I have seen reports that one current cause of the inflation we are seeing is that corps. want to replace the profits that they could not earn over the last year. And, some corps. (Amazon, Apple, etc.) have the monoply power to just raise prices. I did say above that this could be a problem. However, it will likely be temporary, because the people will run out of excess dollars pretty soon.
.
#15177228
Steve_American wrote:Well, you would be wrong. Prof. Bill Mitchell said as much in the last week. That is, that monetary policy never worked that well.
I don't think that the 70s are an example of how raising interest rates controlled inflation. It seemed to me as I lived thru it, that inflation kept getting higher for years.


Prices kept going higher due to demand. I can't write down everything that caused the stagnation given it was a perfect storm of many variables, but the main starting problem was supply of oil. Anyway the whole point of rate hikes is to reduce what people have to spend which in turn reduces demand which then controls prices. It does work and it worked in the 70s. You just don't realise it given you couldn't afford much. But had everyone been able to spend like they do today... well you can see the issue even then.

Please explain just how raising interest rates reduces what people can spend, when they already have the dollas in their hands. AFAIK, you are saying that all that Gov. spending had already put too many dollars in the hands of too many people. So, we just disagree on the claim that raising interest rates will supress spending by people who already have the dollars to spend.


It is the same reason reducing interest rates encourages and allows people to spend. Do you know why interest rates are currently so low? But if you want me to explain it in laymen for you, the more people pay in interest, the less they can spend on goods. Also, higher interest equals more savers.

I have seen reports that one current cause of the inflation we are seeing is that corps. want to replace the profits that they could not earn over the last year. And, some corps. (Amazon, Apple, etc.) have the monoply power to just raise prices. I did say above that this could be a problem. However, it will likely be temporary, because the people will run out of excess dollars pretty soon.
.


That is definitely one cause. There are quite a few. The main one I would say is down to supply. Closing down the economy obviously reduced production which has driven up prices given demand is now rising as we are beginning to open up.
#15179016
B0ycey wrote:Right, I am going to explain something to you being you seem to ignore one key aspect of my argument and quite frankly one key aspect of MMT. I have not once said I am worried about the size of the national debt. I have not once said we shouldn't be borrowing. And not once have I said we have to pay it back the debt with a surplus economy. Why? Because of MMT. What I have said is that currently we have no plan on taxation to draw that borrowing back and the money created was not for growth but to close down the economy. MMT considers currency in circulation money that has not been collected via taxation. To control inflation you need to tax. We are seeing inflation. Increased money supply allows consumers to bid up prices. We have printed free money. We now have a shortage in supply. Why can you not see that MMT would actually explain right now why we are seeing inflation rather than keep on using it as an example to why we haven't shook the money tree enough. :roll:


You wrote, "And not once have I said we have to pay it back the debt with a surplus economy." By "surplus economy" I assume that you mean an economy in which the Gov. collects more in taxes and fees that it pays out for everything.

OK, you never said it, however the title of this thread is "How will the US pay back its debt?"

I'm just makig it clearer to the lurkers that the US will never pay-off its debt.

When the US ceases to exist, the debt will not be paid off. In theory the gold of the US could be used to pay it at so many cents worth of gold per dollar, but this will almost certainly not happen. Either the winner of the war will steal the gold or the chaos will let whoever steal it. All the dollars in circulation and in bank accounts will also be without value.

Until then, the damage to the economy and also to the wealth of the rich and the corps. they own --- of trying to pay the debt off --- will make it impossible to do so.

IT IS UMPOSSIBLE FOR THE US TO EVER PAY ITS NATIONAL DEBT OFF, except by creating new dollars, which will also damage the economy and wealth of the rich.

Why does anyone think that we ought to pay-off the debt. IMHO, it is because of the totally false claim the the US is just like a family or corp. This is just 1 more reason why this false idea should be errased from the public memory. This idea is stupid and hurtful to most Americans.
.
#15185157
MMTers claim that the US national debt is just the dollars the Gov. has gifted to the American people and not taxed back yet.
The US can never tax the gifted dollars back.

One way to make this clearer is an anology.
A person owes a bank $100K and he/she also owns the land and building the bank is in (and the bank can't move).
Does the bank gain anything if the land owner/borrower raises the rent to pay off the loan? I claim it doesn't.
[Here the land owner is the US Gov., the bank are the rich Americans who hold the debt, and the rent increase is a tax increase on the rich.]
This analogy does not include the damage to the economy that raising taxes that, by accounting definition, suck net dollars out of the economy would do.

I claim that only the rich can pay $20T in net taxes that are not off-set by Gov. spending. That is, the bonds of the debt are being paid-off with dollars of a surplus of tax revenue that is higher than total Gov. spending.
.
#15185529
MMTers claim that the US national debt is just the dollars the Gov. has gifted to the American people and not taxed back yet.
The US can never tax the gifted dollars back.

One way to make this clearer is an anology.
A person owes a bank $100K and he/she also owns the land and building the bank is in (and the bank can't move).
Does the bank gain anything if the land owner/borrower raises the rent to pay off the loan? I claim it doesn't.
[Here the land owner is the US Gov., the bank are the rich Americans who hold the debt, and the rent increase is a tax increase on the rich.]
This analogy does not include the damage to the economy that raising taxes that, by accounting definition, suck net dollars out of the economy would do.

I claim that only the rich can pay $20T in net taxes that are not off-set by Gov. spending. That is, the bonds of the debt are being paid-off with dollars of a surplus of tax revenue that is higher than total Gov. spending.


The wealthy hold a great deal of money in non-working capital. What your analogy forgets is that taxes encourage investment over income. Closing loopholes and raising taxes can take money that would otherwise be held in cash like assets, or spent on non generating activities or assets and put it into working capital.

An example would be the purchase of an expensive piece of art. If the purchase of a Rembrandt for $100 million creates an income tax liability requiring $175 million in income to accomplish the purchaser may be encouraged to reinvest the money and have no income liability on the whole $175 million. This creates capital to use to build the economy, employ people.

The mistake that some people make is assuming that tax money is always a drain. Of course we all know that money spent by the federal government can be quite stimulative but we do not recognize it is so unless we get it in cash rather than a job.

And even if you mistakenly believe that all taxes are regressive, the threat of taxes can be most definitely stimulative.
#15185685
Drlee wrote:I wrote and he quoted --- MMTers claim that the US national debt is just the dollars the Gov. has gifted to the American people and not taxed back yet.
The US can never tax the gifted dollars back.

One way to make this clearer is an anology.

[The analogy was snipped.]

The wealthy hold a great deal of money in non-working capital. What your analogy forgets is that taxes encourage investment over income. Closing loopholes and raising taxes can take money that would otherwise be held in cash like assets, or spent on non generating activities or assets and put it into working capital.

An example would be the purchase of an expensive piece of art. If the purchase of a Rembrandt for $100 million creates an income tax liability requiring $175 million in income to accomplish the purchaser may be encouraged to reinvest the money and have no income liability on the whole $175 million. This creates capital to use to build the economy, employ people.

The mistake that some people make is assuming that tax money is always a drain. Of course we all know that money spent by the federal government can be quite stimulative but we do not recognize it is so unless we get it in cash rather than a job.

And even if you mistakenly believe that all taxes are regressive, the threat of taxes can be most definitely stimulative.

DrLee, I never said not to tax.
I said don't tax enough to have a surplus for 100 years while you are paying off the current $25T so-called national debt.
. . . If we must pay the so-called national debt of, the only way --- is to create new dollars to pay off the bonds as they come due. Also, to pay the interest until then.
. . . I suppose (but I'm no expert) that after a few years of paying all interest and redeeming the bonds with 'thin air' dollars, it would likely be possible to raise the tax rates some, but still not enough to have a surplus. This would take 29 years because there are 30-year bonds being sold. In my, non-expert, opinion; doinig this would damage the economy in a few ways, and so would be stupid.

The US must tax for 2 reasons ---
1] To free up resources so the Gov. can use them by buying them with spending. If all the resources are already being used by the people, the only way a new Gov. can spend on anything is to create taxes to free up resources that the Gov. can then use.
. . . This still applies when the Gov. is 200 years old, and wantos to buy more stuff, but the people are already using all the available resources to make the stuff they are using.

2] To give the dollar some basic value. If the people and corps. don't need dollars to pay taxes, why would they accept them for their products or for their labor?
.
#15189285
The title of this thread is ---
HOW WILL THE US PAY BACK ITS DEBT?

Note that is isn't HOW WILL THE US PAY *OFF* ITS DEBT?

The US has always paid back the money it borrowed with all the interest due.
From when it started a new national debt after it had paid off the debt (in about 1837) from the Rev. War, until 1913 when the Federal Reserve Bank was created and especially since 1971 when Nixon took the world off the gold standard; the US has mostly paid back its bonds with borrowed money . We can see this is true because the national debt kept growing.

Now that the US is fully off the gold standard and can't get back onto it, it is possible for it to pay the bonds as they come due by creating new dollars with computer key strokes. This is not a good idea, though. It is pretty much the same thing (paying with new dollars) when the Fed. buys US Gov. bonds indirectly or directly.

My main point is that the US has always paid back its debts. If this is the question, then the answer is, why ask(?), it always has paid them back.

Mostly, I took this thread to be about paying *off* the national debt.
To do this the US can't borrow to make the payments. It must have a surplus, or it must create new dollars, which is like printing dollars.
. . . The problem with a surplus is --- that this destroys the dollars that were created in the past when the Gov. had a deficit and borrowed to cover it.
. . . This destruction of dollars has the effect of reducing someone's income. This reduces spending. And, this starts a recession.
You need to understand that banks also create money with every loan they make. However, this adds zero the the net worth of the nation's people because there is a contract to pay back the loan that matches the increase in dollars with a negative amount. So, no net increase.
. . . So, in a boom, banks are creating dollars that are spent and so adding to someone's income, which adds to the GDP.
. . . Now, when the Gov. has a surplus and this reduces incomes, pretty soon people start to borrow less and banks want to lend less. Immediately, this reduces incomes. This then is added to the Gov. reducing incomes to increase the reduction of incomes and spending. Pretty soon, as the recession deepens, banks start getting more in payments than the total of new loans they are making. When this happens, both the Gov. surplus and the net for bank loans and repayments are destroying dollars. This then, is the cause of many recessions. In fact, MMTers point out that everyone of the 7 times the US Gov. has had a surplus for a few years, it has lead to (and MMTers say, see the above explanation) caused a recession.

Understand that, MS Econ. assumes *away* all this about the banks, when it assumes that banks lend their depositors' money, and so don't create new dollars.
So, the MS Econ. theory doesn't understand the cause of recessions at all.

Does MS Econ. understand that when the US Gov. has a surplus it is destroying dollars?
. . . How the Gov. destroying dollars with a surplus is --- before the transaction a person-A has dollars in cash (usually in a bank checking account) and another person-B has dollars of savings in the form of a bond that is about to come due. Now, the Gov. collects taxes from person A and pays them to person B to pay off the bond. So, after these 2 transactions, person A has less dollars, and person B has lost his dollars in his bond, but has received an equal amount of cash dollars instead. This has the net effect of reducing the total of dollars in cash and bonds by the amount of either the taxed amount or the equal bond amount.
. . . Now, this would have no bad effect on the nation's net incomes *IF* the bondholders spent all of the money they received when the Gov. paid off their bonds. However, the bond holders almost never do this. They had the money in savings and they still want to save that money. So, they don't spend it.

Worse than that, as the Gov. surplus continues and incomes drop, causing a slight recession; there is a *major reduction* in a desire to invest in new production. Investments during the boom (that has now ended) did add to incomes, but now savers don't want to invest because demand has been reduced as people stop spending because their income had been reduced. This means that as the Gov. continues its surplus, there is no desire to invest the money the bondholders have received for their bond that has just come due and was redeemed by the Gov. So, they save it or maybe invest it overseas (where it doesn't add to US incomes).
. . . Understand that dollars saved also reduce the income of someone. These dollars just sit there in a savings account.

The tendency of the rich and fairly well off to save is one reason that the Gov. needs to deficit spend in most years. If too many people save too much and the Gov. doesn't deficit spend, this can reduce incomes enough to cause a recession, because people spend less when their income is reduced. And this reduces the GDP.
Another, loss of dollars is the trade deficit. A person buys a chair made in China, so that money is now (really was already) sent to an account of someone in China. They can move it (or it has been moved) overseas, or buy a US bond, or (unlikely and this reduces the trade deficit) buy something in America.

IMO, the Gov. deficit needs to match the amount the people and corps. save, plus the amount of the trade deficit, plus some more to cause the desired 2% inflation. In any case, IMO, the Gov. should deficit spend *now* on ACC, etc., until we see inflation go over 2% averaged over 2 years (2 years, because of the deflation in 2020). Right now we are having by some reports inflation of 5%, but we had deflation of about 4 to 7% last year so the average is -2% to 1% inflation for the 2 years or -1% to 1% per year, as the average over 2 years.
  • 1
  • 4
  • 5
  • 6
  • 7
  • 8
Did You Get Vaccinated?

It's not experimental anymore.

So it is creation of money ex nihilio. Offset ag[…]

"Whether we like it or not"

Pollution mitigating strategies so far 1. &quo[…]

I hope that fuck fuck piece o shit Trump dies ASA[…]