[Steve_American]

30 years isn't "forever" and the US government isn't the only existing government.

Sir, is 325 years forever? [The UK (aka England) has had a national debt for 325 years.]

And, so Americans should save euros or yen? That is if some Americans saved euros, then the total money ($$+euros) held by the private sector can be increased when the US Gov. has a balanced budget.
. . . But, why is this better than the Gov. having a deicit?
. . . What effect would Americans hoarding euros have on the economy of the EU/EZ?
.

[XogGyux]

If you spend now more than you take in in taxes, it means spending cuts in the future.
You'd have to be brain dead not to realize this.

This is a very simplistic view and calling others "brain dead" when you are oversimplifying something is kind of ironic =D.

Is buying something on borrowed money a bad idea? Well, it depends. It depends on what you are buying, for what reason, who are you buying it from and who is lending you the money, and what are the terms. Borrowing 20k from Amex at 17% APY to buy a Rolex Daytona (at fair market price, we are not considering flipping in this example) is almost definitely a dumb idea if you cannot afford it to begin with. On the other hand borrowing 200k on a 4% rate to buy your house is probably not a bad idea.
Government spending, for the most part, is an investment on our future. Yes, there are some areas that are wasteful and 2 people would probably never agree which exact "programs" are worthy.. some want to spend more on space exploration, others want to spend more on nuclear bombs. Democracy at work

[wat0n]

Sir, is 325 years forever? [The UK (aka England) has had a national debt for 325 years.]

And, so Americans should save euros or yen? That is if some Americans saved euros, then the total money ($$+euros) held by the private sector can be increased when the US Gov. has a balanced budget.
. . . But, why is this better than the Gov. having a deicit?
. . . What effect would Americans hoarding euros have on the economy of the EU/EZ?
.

What's your point? I don't know of any country that doesn't have even some national debt.

The issue is whether that debt is sustainable in the long run or not. At some point, if you have too much debt you'll go bust. It doesn't matter if you are an individual, a business or a government - if your debt stock is too large you'll have to make the corresponding periodic payments and these will be too large for your income. And it will be worse if your income decreases or the debt becomes more expensive (rates go up).

MMT people somehow can't understand something as basic as the above, and what they get right is something that mainstream economics gets right too.

[Steve_American]

What's your point? I don't know of any country that doesn't have even some national debt.

The point is that Puffer Fish claimed that deficits now mean cuts to have surpluses later, i,e. soon (not 100 years from now).

The issue is whether that debt is sustainable in the long run or not. At some point, if you have too much debt you'll go bust. It doesn't matter if you are an individual, a business or a government - if your debt stock is too large you'll have to make the corresponding periodic payments and these will be too large for your income. And it will be worse if your income decreases or the debt becomes more expensive (rates go up).

Sir, you don't grok MMT. MMT all stems from the fact that the world is off the gold standard, and the US has its own fully fiat currency. This means that the US debt is voluntary**. That the US, not the bond market, sets the interest rates, because there is zero risk of default on interest or principal.
. . . [It is not true for nations that use the euro or are in the EU.]
. . . Therefore, it does matter if you (to use your word) are a user of the currency or the issuer of the currency. It makes all the differency in the world.
. ** . The debt is voluntary because it is not necessary for the US to issue bonds. Pres. Lincoln printed and spent greenbacks in the Civil War, and that was during the gold standard. There didn't seem to be any blowback from that. Japan has had the BoJ buy about 40% of the outstanding Japanese bonds. I just saw a report that in Aust., in the last year the RBA (Reserve Bank of Aust.) has bought over 93% of new Aust bonds over the last 1 year.

With all due respect, sir, I am certain that in 1985 nobody in the US could have imagined that a US debt of over $10T could be sustained without inflation. Now you are worried about a debt over $25T. And, yet we are seeing inflation in only some things (houses, used cars, lumber, etc.) This localized unflation can be explained as being totally the result of the worldwide economic dislocations caused by the pandemic and resulting worldwide lockdowns.
. . . The fact that everyone was totally wrong in 1985 means that you can be (and almost certainly are) wrong now, because your mind is very like the minds of all people in 1985.

OTOH, do I, or any MMTer, claim that deficits cn never be too high? NO, we do not make that claim. I claim that the US deficit can be a little or somewhat larger that the sum of net savings plus the net trade deficit.

MMT people somehow can't understand something as basic as the above, and what they get right is something that mainstream economics gets right too.

So, NO! The problem is that in your mind you are still living in a world with the gold standard. You have not groked that fiat currencies are very different from gold coins.

[wat0n]

Fiat currencies aren't all that different. If the market believes the issuer cannot sustainably meet debt payments without resorting to the inflation tax then it will act in consequence in the exchange rate markets.

If anything, whenever a government would fail to enforce the gold standard, it would switch to a fiat currency regime and - since it was unable to pay debts - rely on segniorage. One reason why the fiat currency regime is precisely because governments work hard to maintain its credibility, credibility MMTers don't seem to care about.

The US of course has a great track record (it has never defaulted on its debt) but that doesn't mean that it cannot get into a high inflation dynamic at all. It has in fact happened in American history in the past. IIRC, for instance, during the Civil War the Union reached inflation rates of up to 80% while the Confederacy experienced hyperinflation outright (inflation rates of 3,000%-5,000%).

[late]

Fiat currencies aren't all that different.

Night and day..

[wat0n]

Night and day..

They are more flexible, but I'm reality both require a minimum credibility to be able to function. People also will not use a gold backed one if they believe the government is unable to do so, instead, you will see speculators selling to see if the government is serious about backing it up.

[Steve_American]

Fiat currencies aren't all that different. If the market believes the issuer cannot sustainably meet debt payments without resorting to the inflation tax then it will act in consequence in the exchange rate markets.

If anything, whenever a government would fail to enforce the gold standard, it would switch to a fiat currency regime and - since it was unable to pay debts - rely on segniorage. One reason why the fiat currency regime is precisely because governments work hard to maintain its credibility, credibility MMTers don't seem to care about.

The US of course has a great track record (it has never defaulted on its debt) but that doesn't mean that it cannot get into a high inflation dynamic at all. It has in fact happened in American history in the past. IIRC, for instance, during the Civil War the Union reached inflation rates of up to 80% while the Confederacy experienced hyperinflation outright (inflation rates of 3,000%-5,000%).

https://www.officialdata.org/us/inflati ... amount=200
See the graph in the above link of "Buying power of $200 over time, [from] 1801 to 2021".

It shows that during the Civil War the buying power did fall a great deal, from $300 down to $150. This is 50% drop in buying power from 1860 to 1866. But this is a 50% drop, not a "rate" of 80% per year which you seemed to imply. It isn't even 80% over the 6 years. But, then it reversed and the dollar recovered its buying power. It was back over $300 around 1896. [You do know that if wages grew that the workers and others benefitted. That it ws the bankers, aka lendres, who lost.] There were very few "fixed incomes" in the 1870s & 80s.
. . . Over 5 years 12% inflation compounded reuces the buying power from $300 to $158, if I did the math right. IMO, a 12%/year "raye" is far from an 80%/year rate.
. . . The fact that it reversed means that it is not a given that once inflation starts it can't easily be stopped.
. . . The report I saw said that Pres. Lincoln decided that bankers wanted too much interest and so he printed dollars, but he also raised tax rates. He just used the new dollars to cover the deficit. I have never heard one peep about the inflation being ruinous for the Northern economy, not one peep. And I'm well read on the Civil War.

Yes, the Confederates had it worse because it couldn't collect taxes. It resorted to printing dollars instead of taxing. Of course MMTers will predict huge inflation every time a 'nation' does that. It is not surprising.

Yesterday, I saw a report that the Fed. Chairman has announced that the Fed. intends to wait and see if inflation becomes a problem, before the Fed. will act. Sir, you seem to want to act before inflation becomes a problem. You also seem to think that raising interest rates is the only thing the Gov. can do to stop inflation. Actually, MMTers say that cutting spending and raising tax rates are somewhat better ways to stop inflation.
.

[wat0n]

Thanks for the correction - I found elsewhere that the inflation had been 80% in the north (in reality, it's a 70% cumulative rate throughout the war). But I can see you don't disagree about the Confederate inflation rate.

If you also don't disagree about those dynamics, then why insist in claiming inflation doesn't matter and won't matter when it comes to the US? Note that's the gist of what I was responding to initially.

As for the Fed wondering if inflation could be a problem: I think they're right, as long as inflation expectations don't clearly shoot up I also don't think it's a problem. But no one can guarantee inflation expectations will stay subdued forever, that's what MMTers are missing here.

[late]

Thanks for the correction - I found elsewhere that the inflation had been 80% in the north (in reality, it's a 70% cumulative rate throughout the war). But I can see you don't disagree about the Confederate inflation rate.

If you also don't disagree about those dynamics, then why insist in claiming inflation doesn't matter and won't matter when it comes to the US? Note that's the gist of what I was responding to initially.

As for the Fed wondering if inflation could be a problem: I think they're right, as long as inflation expectations don't clearly shoot up I also don't think it's a problem. But no one can guarantee inflation expectations will stay subdued forever, that's what MMTers are missing here.

"Then came an extraordinarily successful vaccination campaign. Deaths have plunged more than 85 percent and are still dropping. As fear recedes, the economy is surging, in what may end up being the fastest recovery ever. For example, restaurant bookings are already almost back to normal.

Why would anyone imagine us able to achieve that kind of sudden acceleration without leaving a few skid marks, and maybe even burning some rubber?

So yes, sawmill operators, who expected a longer slump, got caught short, leading to sky-high lumber prices. Rental car companies, which sold off a large part of their fleets last year, are now scrambling to buy vehicles again, helping to send used-car prices soaring. And so on.

Mainly, however, we’re just seeing the problems you’d expect when the economy tries to roar ahead from a standing start, which means that we’re calling on suppliers to ramp up production incredibly fast and expecting employers to quickly attract a large number of new workers. These problems are real, but they’ll mostly resolve themselves in a few months.

So what do these probably temporary problems say about the longer term, and in particular about President Biden’s economic plans? That’s easy: nothing.

So as I said, chill out. There is some bad news out there, but most of it is a temporary byproduct of extraordinary good news: The virus is losing, and the economy is winning."

https://www.nytimes.com/2021/05/27/opinion/us-economy-growth.html?searchResultPosition=4

[wat0n]

"Then came an extraordinarily successful vaccination campaign. Deaths have plunged more than 85 percent and are still dropping. As fear recedes, the economy is surging, in what may end up being the fastest recovery ever. For example, restaurant bookings are already almost back to normal.

Why would anyone imagine us able to achieve that kind of sudden acceleration without leaving a few skid marks, and maybe even burning some rubber?

So yes, sawmill operators, who expected a longer slump, got caught short, leading to sky-high lumber prices. Rental car companies, which sold off a large part of their fleets last year, are now scrambling to buy vehicles again, helping to send used-car prices soaring. And so on.

Mainly, however, we’re just seeing the problems you’d expect when the economy tries to roar ahead from a standing start, which means that we’re calling on suppliers to ramp up production incredibly fast and expecting employers to quickly attract a large number of new workers. These problems are real, but they’ll mostly resolve themselves in a few months.

So what do these probably temporary problems say about the longer term, and in particular about President Biden’s economic plans? That’s easy: nothing.

So as I said, chill out. There is some bad news out there, but most of it is a temporary byproduct of extraordinary good news: The virus is losing, and the economy is winning."

https://www.nytimes.com/2021/05/27/opinion/us-economy-growth.html?searchResultPosition=4

Indeed, I also don't think this should last forever. Also, deflationary expectations overshot at the beginning of the pandemic because of exactly the opposite process - there was a belief that demand had tanked too quickly and that this would impact prices in the corresponding direction. It's not surprising to see the opposite going on now.

But leaving these aside, surely you can agree that the government can't simply ignore the issue of fiscal sustainability by simply saying "well we can always print money", right? And I say this regardless of who's at the White House, Trump for instance was as fiscally irresponsible as it gets.

[late]

But leaving these aside, surely you can agree that the government can't simply ignore the issue of fiscal sustainability by simply saying "well we can always print money", right? And I say this regardless of who's at the White House, Trump for instance was as fiscally irresponsible as it gets.

There was a saying back in the 70s, 'It's not what you do, it's how you do it.'

If you spend money in useful ways, that will be good for economy. As I like to say, you have to build the future you want to live in.

The problem with Republican tax cuts is that the rich already have too much money. Which is not good for the economy...

[wat0n]

There was a saying back in the 70s, 'It's not what you do, it's how you do it.'

If you spend money in useful ways, that will be good for economy. As I like to say, you have to build the future you want to live in.

The problem with Republican tax cuts is that the rich already have too much money. Which is not good for the economy...

Indeed, I also think that how the money is spent is important, but you can only go so far as far as quality is concerned. At some point, quantity will matter too, because you will run out of profitable ventures to follow (think Japan building huge airports in small towns in the 1990s).

As for the current spending spree - I actually much of it is indeed necessary. The US does have an aging infrastructure, and the longer the politicians procrastinate around this the more expensive it will be to replace (which it will be, by the way). Likewise, I also agree that something needs to be done in the climate change front, although I don't know if the US is following the optimal path here, it is at least going in the right direction overall.

But once this investment is finally carried out, shouldn't government spending come down to more normal levels? If not, how would it need to be reapportioned?

[late]

But once this investment is finally carried out, shouldn't government spending come down to more normal levels? If not, how would it need to be reapportioned?

You just put me in an awkward position.

I like to talk about what we should do.

Problem is, we've given up. We will let things slide until the whole shebangs comes crashing down.

We won't do the hard work on the power grid, or climate change, or winding down the empire, and it will eventually catch up with us.

[SueDeNîmes]

But leaving these aside, surely you can agree that the government can't simply ignore the issue of fiscal sustainability by simply saying "well we can always print money", right?

Nobody says that, though it's often misattributed to MMT.

Inflation is indeed the limit in a fiat currency system, but because of real resource constraints, not the whims of the bond market. The govt doesn't really have to issue bonds at all and does so, not in order to obtain its own currency, but to mop up central bank reserves created by net (or "deficit") spending, which would otherwise accumulate in the banking system until the central bank lost control of interest rates:

A central government with its own currency can pay for its nominal spending by creating money ex novo,[3] although typical arrangements leave money creation to central banks. In this instance, a government issues securities to the public not to raise funds, but instead to remove excess bank reserves (caused by government spending including debt servicing cost that is higher than tax receipts) and '...create a shortage of reserves in the market so that the system as a whole must come to the [central] Bank for liquidity.' [4]

https://en.wikipedia.org/wiki/Government_debt

[wat0n]

Nobody says that, though it's often misattributed to MMT.

Inflation is indeed the limit in a fiat currency system, but because of real resource constraints, not the whims of the bond market. The govt doesn't really have to issue bonds at all and does so, not in order to obtain its own currency, but to mop up central bank reserves created by net (or "deficit") spending, which would otherwise accumulate in the banking system until the central bank lost control of interest rates:

That's not why the government may prefer to issue debt. The real reason is to avoid losing control of inflation, which can be regarded as a kind of tax in this dynamic.

[Rugoz]

Nobody says that, though it's often misattributed to MMT.

Inflation is indeed the limit in a fiat currency system, but because of real resource constraints, not the whims of the bond market. The govt doesn't really have to issue bonds at all and does so, not in order to obtain its own currency, but to mop up central bank reserves created by net (or "deficit") spending, which would otherwise accumulate in the banking system until the central bank lost control of interest rates:

Well it's the central bank's job actually, it sells bonds it previously bought on the market and destroys the money it gets. Minor distinction to make.

[Steve_American]

Thanks [to Steve_Americam] for the correction - I found elsewhere that the inflation had been 80% in the north (in reality, it's a 70% cumulative rate throughout the war). But I can see you don't disagree about the Confederate inflation rate.

If you also don't disagree about those dynamics, then why insist in claiming inflation doesn't matter and won't matter when it comes to the US? Note that's the gist of what I was responding to initially.

As for the Fed wondering if inflation could be a problem: I think they're right, as long as inflation expectations don't clearly shoot up I also don't think it's a problem. But no one can guarantee inflation expectations will stay subdued forever, that's what MMTers are missing here.

Maybe if I put it the largest bold font you will grok what I and MMTers have said.

Sir, we never said that inflation doesn't matter or can never be a problem. I said that the Gov. deficit can be a little over the total of net savings** and the net foreign trade deficit. MMTers just say it can be a lot more than the current deficit, and it ALL depends on the real resources and labor not yet being used at close to 100% of what is possible.
. . . We also say that we must wait until inflation starts to get "too high", because we can't *know* what level of deficit spending will cause that. That therefore, it is better (for the good of the mass of the people***) to avoid doing too little deficit spending, so as to be sure not to go too high. Thus, we want to wait until inflation starts, and not hold back to be sure not to do too much.

. ** . Note that, by definition 100% of net bond sales go directly into "savings". So, when Pres. Lincoln printed greenbacks and spent them into the economy there was no bond sales envolved, and so there was more infaltion.
. *** . Note that, here there is an assumption that the US Gov. should act for the good of the mass of the American people, and not for the good of the top 1% or 10% of wealthy people. Commander Spock said so when he said, "We must do what is best for the greatest number o people and not what is good for the few." Jesus said so. Many have said so. Very few in history have said the Gov. should act totally or mostly for the good of the rich, and not for the good of the many other citizens.
. . . Capitalism is designed to make sure that the rick are never hurt that bad. They are always taken care of automatically. The poor OTOH are now being crushed by Neo-liberal economics and the policies it proposes and then sees to it that they are enacted.
.

[wat0n]

Sir, we never said that inflation doesn't matter or can never be a problem. I said that the Gov. deficit can be a little over the total of net savings** and the net foreign trade deficit. MMTers just say it can be a lot more than the current deficit, and it ALL depends on the real resources and labor not yet being used at close to 100% of what is possible.
. . . We also say that we must wait until inflation starts to get "too high", because we can't *know* what level of deficit spending will cause that. That therefore, it is better (for the good of the mass of the people***) to avoid doing too little deficit spending, so as to be sure not to go too high. Thus, we want to wait until inflation starts, and not hold back to be sure not to do too much.

Right, and another criterion would be to look at the bond rates. No disagreement there, the issues I've mentioned are of a long term character. They don't need to be dealt with overnight - but they do need to be dealt with at some point.

[Steve_American]

Right, and another criterion would be to look at the bond rates. No disagreement there, the issues I've mentioned are of a long term character. They don't need to be dealt with overnight - but they do need to be dealt with at some point.

OK, you are halfway to understanding.
With all due respect, Sir, the US Gov. can choose what interest rate it chooses to pay. Someone somewhere will buy them at 1.5%. If this is not the case somehow, then the Gov. can sell them to the Fed. directly as it did during WWII, see the thread about this I posted a year ago. "I said this before, but now I have proof," or something close to that.
. . . But, selling them to the Fed. is more inflationary, so more taxes or spending reductions will be necessary.
.