Geithner Asked What Would Be Very Last Debt Ceiling Request - Politics Forum.org | PoFo

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#13921925
"If this were the last debt ceiling increase you could ask for, the final one, and you had to make it large enough for all current and future obligations, what would the request need to be?" Congressman Trey Gowdy (R-SC) asked Treasury Secretary Tim Geithner at a Capitol Hill hearing on Wednesday.

"I don’t know how to answer that question," Geithner said to Gowdy.

After being prodded by the Congressman, Geithner eventually told him, "it would be a lot."

“It would be a lot,” Geithner finally said. “It would make you uncomfortable," he added.




I will answer this question for him. America needs around $64 trillion dollars to cover all the unfunded liabilities. Start generating those numbers, helicopter Ben!
#13921936
America is the only country that has this backward requirement of a "debt ceiling," which is the only thing that would even put us at risk of default. And before anyone suggests that we risk a default if foreign investors stop buying our bonds, it should be noted that the Fed essentially controls the bond market, and has the power to buy up all the bonds if it so chooses.

Also:
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#13921949
What would happen to the US economy if the Federal Reserve going to be the only one buying up the bonds? Massive inflation?


I would assume so. The fed would have to severely devalue the dollar through its printing press in order to buy back the bonds.

Nope. Inflation has nothing to do with who's buying our bonds, and everything to do with the velocity of money in the economy.


How does it have nothing to do with inflation? Does the fed have cash reserves to buy bonds with? They don't which means they will have to inflate the money supply. There's no way around it. Unless they artificially inflated the money supply already and are sitting on this money, which is fucked up, but I guess they could do that. Still, they inflated the money supply at some point, you can't get around that.
Last edited by Rancid on 21 Mar 2012 20:34, edited 4 times in total.
#13921952
In order to buy up bonds, the Feds do require the expansion of the money supply.


Exactly, I don't know why Paradigm seems to think that somehow the fed can create free money at no expense. IF what paradigm is saying is true, then we shouldn't worry at all about debt and inflation because money would effectively be free to the government, which is bullshit. It completely ignores that the value of money is relative to other nations. The US isn't some sort of isolated entity.
Last edited by Rancid on 21 Mar 2012 20:36, edited 1 time in total.
#13921955
Rancid wrote:How does it have nothing to do with inflation? Does the fed have cash reserves to buy bonds with? They don't which means they will have to inflate the money supply. There's no way around it.

Good thing spending precedes borrowing, meaning that the cash reserves already exist by the time the bonds are auctioned off, and can simply be exchanged for bonds with no further expansion of money supply.
#13921959
Good thing spending precedes borrowing, meaning that the cash reserves already exist by the time the bonds are auctioned off, and can simply be exchanged for bonds with no further expansion of money supply.


Right, and my point is, that the way that cash came to existence was through manipulation of the money supply which can create inflation. The bonds themselves don't manipulate the money supply, but the need to back them up in full does.
#13921962
Rancid wrote:Right, and my point is, that the way that cash came to existence was through manipulation of the money supply which can create inflation.

It can if the money supply is expanded in excess of the net desired savings rate, but that is a matter of government fiscal policy, independent of who buys our bonds. The point is that when the government spends, it creates deposits which then become the reserves with which bonds can be purchased. So there is no need to expand the money supply just for buying up the bonds, because the necessary money supply is already created for the projects the government is funding.

Russkie wrote:And when was the last time the Feds had a balanced budget? :lol:

In the 90's, and it's a good thing it didn't stay balanced, because a balanced budget destroys previous years' savings.

/GBTR
#13921967
In the 90's, and it's a good thing it didn't stay balanced, because a balanced budget destroys previous years' savings.


Tell me how a surplus or balanced budget destroys savings. Did you get this voodoo economics at a lecture hosted by Ben Bernanke?


The government is not a business, a business will get less money next year if they have a surplus, that is true. But the government doesn't care about that, it loves deficits since its previous debt will have less value in real terms.
#13921972
It can if the money supply is expanded in excess of the net desired savings rate, but that is a matter of government fiscal policy, independent of who buys our bonds. The point is that when the government spends, it creates deposits which then become the reserves with which bonds can be purchased. So there is no need to expand the money supply just for buying up the bonds, because the necessary money supply is already created for the projects the government is funding.


And you can't see how this is a problem if say the government starts to issue $100000000000000000000000000000000000000000 trillion of debt instruments say over the next year?

If it's done slowly and responsibly, I agree, it probably wouldn't be a problem. The problem occurs if the government goes batshit with this.

My point still stands, there is no such thing as free money for the government, there simply isn't.
#13921978
Russkie wrote:Tell me how a surplus or balanced budget destroys savings.

Simple: Government is the monopoly supplier of currency. Any money that exists in the economy is there because of government spending. If government taxes all the money it spends, then that leaves nothing left for savings. Savings therefore come from deficits. If government taxes more than the net desired savings rate, that means that previous years' savings get paid in taxes, and once you tax away all the net savings, you get deflation.

The government is not a business, a business will get less money next year if they have a surplus, that is true. But the government doesn't care about that, it loves deficits since its previous debt will have less value in real terms.

Yes, government is not a business. That is precisely because businesses are currency users while the government is a currency issuer(at least the American government -- the Eurozone are a bunch of currency users, so they're more inhibited in their fiscal options).

/GBTR


Rancid wrote:And you can't see how this is a problem if say the government starts to issue $100000000000000000000000000000000000000000 trillion of debt instruments say over the next year?

Where did I say this would be unproblematic? It depends on the ratio of spending to taxes. If that gigantic number you mention was equivalent to the net desired savings rate, then it would be fine, but I don't think anyone would seriously suggest that the net desired savings rate would approach that number by a long shot. And again, the issue is not the debt. It's the deficit. The money to buy the bonds is already created through fiscal policy.

If it's done slowly and responsibly, I agree, it probably wouldn't be a problem. The problem occurs if the government goes batshit with this.

My point still stands, there is no such thing as free money for the government, there simply isn't.

I agree. But it's not about the absolute numbers, nor is it about debt solvency. It's about the ratio of spending to taxation.
#13921988
Savings rates are endogenous and are a function of the return on cash (and other assets). So I don't see how the above makes any sense.
#13922001
I agree. But it's not about the absolute numbers, nor is it about debt solvency. It's about the ratio of spending to taxation.


Debt does matter to some degree though, because there is interest on that debt that has to get paid. The bigger the debt, the more interest. The interest represents more spending (and it's non-productive spending at that!), which would have to be made up through taxation or savings elsewhere. Let's face it, you can't tax everyone to high heaven, if you're debt becomes so big that you can't even manage the interest payments (i.e. you start to borrow money to pay interest), then you're in trouble. So you really can't ignore debt. It is a factor.
#13922045
Nets wrote:Savings rates are endogenous and are a function of the return on cash (and other assets). So I don't see how the above makes any sense.

It doesn't makes sense to you because you've completely missed the fact that in order to save money, the money has to exist in the first place, which means that the government has to create it first. Yes, the desire to save is a function of the return on cash, but the ability to save is a function of how much money there is in the economy. If the government creates more money than people want to save, then it will circulate more rapidly and cause inflation. If there is less money than people want to save, then there won't be enough to circulate, and deflation result after net savings have been exhausted.


Rancid wrote:Debt does matter to some degree though, because there is interest on that debt that has to get paid. The bigger the debt, the more interest. The interest represents more spending (and it's non-productive spending at that!), which would have to be made up through taxation or savings elsewhere. Let's face it, you can't tax everyone to high heaven, if you're debt becomes so big that you can't even manage the interest payments (i.e. you start to borrow money to pay interest), then you're in trouble. So you really can't ignore debt. It is a factor.

It's important to note that the interest on the debt is tied to the federal funds rate. Bonds are, in fact, the very means by which the Fed reaches its target interest rate. They do this by getting banks to buy bonds at the given interest rate with their excess reserves. So the interest the government pays on the bonds is equivalent to the interest that banks charge on their loans. So any extra money the government pays out to bondholders is sucked back out of the economy by borrowers.
#13922067
It doesn't makes sense to you because you've completely missed the fact that in order to save money, the money has to exist in the first place, which means that the government has to create it first.


This is a content-less physical identity.

Yes, the desire to save is a function of the return on cash, but the ability to save is a function of how much money there is in the economy.


Deflate to real terms. How does the quantity of money today have any effect on my ability to save? Before I argue with you, I just want to make sure I understand you completely and don't misrepresent you. What are the accounting identities here you have in mind?
#13922114
Nets wrote:Deflate to real terms. How does the quantity of money today have any effect on my ability to save? Before I argue with you, I just want to make sure I understand you completely and don't misrepresent you. What are the accounting identities here you have in mind?

It may not have much effect on your own personal ability to save, but when looking at savings in the aggregate, an inadequate money supply means that there is not enough of it to meet the demand for savings. Since savings competes with spending, that means that in the aggregate, people will either be unable to meet their desired savings rate, or there will not be enough money in circulation, leading to deflation(which then increases the desire to save, leading to Keynes' famous "paradox of thrift"). This is why the economists at the CBO know that public deficits = private savings. As for accounting identities, I'm referring to savings as income - consumption, and deficits as public spending - taxes.
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