Debt, The EU, And Greece

If you really think the dollar is in a hyperinflation problem, then ask to get paid in Gold or Euros. I bet your employer will laugh at you.

Or just short the dollar and collect more dollars after you do that. haha.

Not yet, but inflation is definitely showing up now in many numbers.

It doesn't happen overnight, you know. An economy this size takes a long time to really shift course.

Malor wrote:

Not yet, but inflation is definitely showing up now in many numbers.

It doesn't happen overnight, you know. An economy this size takes a long time to really shift course.

Good that inflation is showing up. That means the economy is finally getting better. Businesses are expanding. etc.

Also note: you talk about debts being defaulted on, but that's exactly what causes debt deflation -- when the economy takes on too much debt, and tries to shed it. Deflation appears to be the ultimate bogeyman for you, and debt is what causes debt deflation.

To treat the symptom, in other words, you're prescribing more of the cause.

Good that inflation is showing up. That means the economy is finally getting better. Businesses are expanding. etc.

That's only a temporary reprieve; the underlying problems are getting worse, not better. More debt is issued every day, when what we need to be doing is paying it down. We're printing money to force the economy back into the foolish consumption mode it has been in for the last fifteen or twenty years, and that will have consequences much worse than just dealing with the smaller amount of debt in the present.

Malor wrote:

Also note: you talk about debts being defaulted on, but that's exactly what causes debt deflation -- when the economy takes on too much debt, and tries to shed it. Deflation appears to be the ultimate bogeyman for you, and debt is what causes debt deflation.

To treat the symptom, in other words, you're prescribing more of the cause.

Good that inflation is showing up. That means the economy is finally getting better. Businesses are expanding. etc.

That's only a temporary reprieve; the underlying problems are getting worse, not better. More debt is issued every day, when what we need to be doing is paying it down. We're printing money to force the economy back into the foolish consumption mode it has been in for the last fifteen or twenty years, and that will have consequences much worse than just dealing with the smaller amount of debt in the present.

Government debt <> Private debt. So how is it more of the cause?

No we need people working for a decent income, not a stupid pay down debt game.

It worked so well for Zimbabwe.

You can't just keep issuing government debt forever, any more than you can through private companies. Eventually, taxation will not service the debt, and the government must print money, which rapidly depreciates the currency, and destroys the people actually generating wealth in the society.

Printing money reroutes more and more wealth to the government, which is not adding anything of value into the economy in exchange. This is much more damaging than a debt deflation; it just takes longer to play out. The entire economy gradually shifts to servicing the people who print money, instead of the people who generate wealth. And that discourages wealth production...the entire economy shifts to consuming instead of producing, and eventually all the wealth is consumed and the economy collapses.

The right way to avoid a debt problem is not to issue too much debt. It's actually pretty goddamn simple. You keep debt at a reasonable level, and you don't have problems. When you want more stuff, you need to pay off the old stuff first.

You can't dodge the bill for old consumption by playing games with the currency. This idea:

we need people working for a decent income, not a stupid pay down debt game.

means, in other words, that people who save money and lend it will get f*cked. If you discourage saving on a systemic level like that, you don't get enough, and it's always deferred consumption that makes the economy grow. The resources that went into that plasma TV you just bought could have been used for something productive, but instead the energy and materials were wasted, from the perspective of true economic growth.

You cannot print your way to prosperity, and you especially can't consume your way to riches.

Malor - Stop with the silly Zimbambwean references. It is old hat now that we are 2 years into the Great Recession. Not even getting close to inflation now let alone hyperinflation. Perhaps 2 years ago, you could get an audience for that nonsense but not anymore.

The problem is not hyperinflation or even modest inflation. It is lack of jobs and income.

Malor you also don't understand economics. For the economy as a whole Production = Consumption. So if we are to produce something who is going to consume it if we are not supposed to buy Plasma TVs.

goman wrote:

For the economy as a whole Production = Consumption.

So your economy doesn't include capital formation? Man, that must suck.

Aetius wrote:
goman wrote:

For the economy as a whole Production = Consumption.

So your economy doesn't include capital formation? Man, that must suck. :)

S + C = I + P

C = P
S= I

goman wrote:
Aetius wrote:
goman wrote:

For the economy as a whole Production = Consumption.

So your economy doesn't include capital formation? Man, that must suck. :)

S + C = I + P

C = P
S= I

So, you quote Keynes' basic paradox of thrift/equilibrium equation as an answer to capital formation? I'm confused.

EDIT: Here's a longer explanation that discusses Hayek's refutation of the paradox of thrift, for anyone who is interested.

That's a good article. Hayek was brilliant.

That's probably why an economy with sound money, barring major external shocks, tends toward very minor monetary deflation, while living standards increase steadily. As capital is saved and invested in new forms of production, the economy gradually gets more efficient. When we were using gold, that was obviously true of gold mining as well, but manufacturing seems to increase productivity faster than mining does, so the amount of gold in circulation per manufactured good declines very slowly over time.

This means that, again barring external shocks, if you save commodity money as a young person, it will probably have a little more purchasing power at the end of your life. Not a lot -- you'd still be better off investing the money directly into new businesses, or lending it to a bank so they can invest with it, but you'll be able to buy just a little more with your savings at the end of your life than at the beginning.

That kind of fundamental fiscal soundness encourages saving, which in turn encourages investment, which grows the economy in a sustainable way. You get little problems all the time, as the economy constantly runs into minor rough patches and readjusts its output, but you avoid the whacking great huge ones in exchange.

It's a shame that even economists confuse money with wealth. Wealth is energy, stuff and knowledge. Modern money is none of those things. No matter how much of it you add to the economy, it doesn't change the actual amount of wealth available, it just redistributes what's already there to the people printing the money.

I thought of another way of putting it that might be clearer.

In any modern economy, you have a flow of inputs, raw materials and energy. And you have a flow of outputs, manufactured goods of various types.

It's the nature of the produced goods that some of them will make resource processing faster, or more efficient, or simply better. For instance, consider iron extraction. We've got unbelievable quantities of the stuff in the crust, but it takes energy and manpower to process into a usable form.

Once you have that unit of iron, the potential uses for it are manifold. There's a whole hell of a lot of sectors in the economy that can use it for various different things. It could be used to make tools, cars, buildings, toys, cookware, you name it. I could probably fill pages with all the things we can use iron for.

Basically, as a whole economy, we have the choice to consume the iron, using it for, say, a cooking pot, or to invest the iron into new production of some type, perhaps a bulldozer to extract more iron. If we do without the pot, we will get more iron once that bulldozer goes into production, meaning that a pot we make later will be incrementally cheaper. Or, looking at it from a long perspective, we could use the iron to build a school to educate kids, who could then come up with faster ways to extract it, or a better material entirely.

What happens when you print money is the iron is rerouted toward the sources of money, which is typically the government and financial sector. A much larger percentage than normal is used in consumptive ways. Iron that goes into a bank CEO's Beemer is iron that wasn't available to make tractors. The new money increases demand for iron, making it LOOK LIKE the economy is growing, but because so much is being used non-productively, it actually chokes off real growth, the ability to process more iron.

Further, the economy becomes dependent on the flow of cash. The longer the printing lasts, the more thoroughly the economy reorients itself to serve its non-productive masters, and the less actual growth happens. Past a certain point, the economy goes into active contraction, but stopping the money printing looks so painful, and will be so intensely unpopular with the citizens, that the government doesn't dare.

Now, this just gets more and more and more complex the further you dig, but that's the fundamental issue. Money printing increases demand artificially, making the economy grow faster, but it grows wrong. Too much energy and resources are devoted to things that don't make more energy and resources. Do this long enough, and it will cripple the economy, even though the typical high-level measurements will be promising robust health at all times. There's tons of money flowing around, but there never seems to be enough, because the REAL wealth, starved of the goods it needs to expand, is not being produced as fast as it should be.

At any given time, the total resources available in the economy are limited, and absent money-printing, consumptive uses will be self-limiting; people who overconsume and under-produce will eventually go bankrupt. Entities using those resources productively will have a much better chance of surviving and even prospering. Solid money that's limited in quantity keeps an economy from going too far into the weeds -- it's a constant pressure to keep the system producing wealth, instead of just wealth tokens.

Sorry I don't see how that article refutes what I am saying. Whether investment comes from saving or vice versa doesn't matter. What matters is that S = I. (Actually S = I + X for one country but for the world S = I)

Actually it is just and accounting phenomenon.

see here.

http://www.econbrowser.com/archives/...

BTW - Hayek gave up on economics because he was wrong. In his later years he was a political philosopher and still wrong. hehe

Again, the more closely a country follows your suggestions, the faster it disintegrates. This has happened many times. Did you ever look up the banana republics?

Also look up "Old Copper Nose", and note how badly England suffered as their currency was depreciated.

Malor wrote:

Again, the more closely a country follows your suggestions, the faster it disintegrates. This has happened many times. Did you ever look up the banana republics?

Also look up "Old Copper Nose", and note how badly England suffered as their currency was depreciated.

Wrong answer. Math beats polemics every time. Of course policy matters, see Social-democratic countries of Northern Europe. The math is sound.

BTW - you think China is financing their massive growth by saving now? Have you seen pictures of Shanghai?

Malor - you have passed step 1. You do understand that governments cannot go broke. The problem with government overspending is inflation, not solvency. As of now. The USA is underspending and overtaxing. Of course things can change.

goman wrote:

Malor - you have passed step 1. You do understand that governments cannot go broke. The problem with government overspending is inflation, not solvency. As of now. The USA is underspending and overtaxing. Of course things can change.

Do you mean overspending and undertaxing?

Malor wrote:
Governments that issue their own currency cannot go bankrupt.

A line straight from the Robert Mugabe economics handbook. The government won't, but the economy will be ruined.

Sorry, off topic, but when I read that line I imagined walking into Barnes and Noble and seeing a table of "how to succeed" type books with a smiling Robert Mugabe holding up a handful of 1 million Zimbabwe dollar bills.

goman wrote:
Shoal07 wrote:
goman wrote:

Malor - you have passed step 1. You do understand that governments cannot go broke. The problem with government overspending is inflation, not solvency. As of now. The USA is underspending and overtaxing. Of course things can change.

Do you mean overspending and undertaxing?

Since we are in a deflationary environment, the US government is under spending and over taxing. Remember the problem with overspending is inflation, not solvency.

If the government spent less than that means that their would be less money in the system. Which means less savings and less investment. Since as stated before S = I.

Oh yeah - If you don't want to spend more you don't have to. Taxing less, like say a 1-year payroll tax holiday might do the trick.

(The trick being getting people to work and increasing productivity.)

If that's true, why don't they have extra resources to pay down debt? And fund programs?

Shoal07 wrote:
goman wrote:

Malor - you have passed step 1. You do understand that governments cannot go broke. The problem with government overspending is inflation, not solvency. As of now. The USA is underspending and overtaxing. Of course things can change.

Do you mean overspending and undertaxing?

Since we are in a deflationary environment, the US government is under spending and over taxing. Remember the problem with overspending is inflation, not solvency.

If the government spent less then that means that their would be less money in the system. Which means less savings and less investment. Since as stated before S = I.

Oh yeah - If you don't want to spend more you don't have to. Taxing less, like say a 1-year payroll tax holiday might do the trick.

(The trick being getting people to work and increasing productivity.)

Shoal07 wrote:
goman wrote:
Shoal07 wrote:
goman wrote:

Malor - you have passed step 1. You do understand that governments cannot go broke. The problem with government overspending is inflation, not solvency. As of now. The USA is underspending and overtaxing. Of course things can change.

Do you mean overspending and undertaxing?

Since we are in a deflationary environment, the US government is under spending and over taxing. Remember the problem with overspending is inflation, not solvency.

If the government spent less than that means that their would be less money in the system. Which means less savings and less investment. Since as stated before S = I.

Oh yeah - If you don't want to spend more you don't have to. Taxing less, like say a 1-year payroll tax holiday might do the trick.

(The trick being getting people to work and increasing productivity.)

If that's true, why don't they have extra resources to pay down debt? And fund programs?

Oh they do, since one resource not being used is labor.

see Social-democratic countries of Northern Europe

You mean Greece, right? And France? And Britain? Last I checked, their finances were dismal. It doesn't matter, and doesn't matter, and doesn't matter, and suddenly you're Greece, and you have riots. Their riots were prompted sooner because they went onto the Euro and were no longer able to keep playing as if they had more wealth than they actually did, but they'd have gotten to an even more dire predicament if they hadn't prompted the crisis now.

I think what you're missing here is that investment equals savings -- but without savings, there can't be investment. Unless you defer consumption to build new forms of production, the economy doesn't grow.

The only reason the deficit countries are able to do what they're doing is because China and Japan are buying up their debt with their massive exports and personal saving. Were those countries not extending credit, we'd be already in visibly dismal shape, and rapidly getting worse. Instead, the damage is mostly hidden, but the economy is terribly unstable.

Money is not wealth. Printing money doesn't create anything but paper.

Governments can't go bankrupt, but they can burn the economy around them to ash in not doing so. They bankrupt the economy by stealing wealth out of it until it collapses.

Malor and Aetius - You and your Austrian counterpoints are confusing Capital with Savings. They are not the same thing.

Savings is a monetary phenomenon while Capital is real goods and services.

Investment does not need Savings but does need Capital.

Since the government can invest money but cannot save money this is proof of this statement.

Only the non-governmental sector (households, firms and other governments) can save money in the Government's currency.

Savings is a monetary phenomenon while Capital is real goods and services.

No. Nononono. Savings is deferred consumption, things you could have used to make cars or toys or cookware, but instead chose to make tractors and tools to create new wealth with.

Money is NOT WEALTH, it is a CLAIM on wealth. People save in dollars because they're liquid, but they can save any good instead.

Hell, just getting a doggie bag at dinner is a form of saving.... that's food money you won't have to spend later.

And we went through the 'governments can't save' thing already, and I absolutely conclusively showed you that they can.

Malor wrote:
see Social-democratic countries of Northern Europe

You mean Greece, right? And France? And Britain? Last I checked, their finances were dismal. It doesn't matter, and doesn't matter, and doesn't matter, and suddenly you're Greece, and you have riots. Their riots were prompted sooner because they went onto the Euro and were no longer able to keep playing as if they had more wealth than they actually did, but they'd have gotten to an even more dire predicament if they hadn't prompted the crisis now.

I think what you're missing here is that investment equals savings -- but without savings, there can't be investment. Unless you defer consumption to build new forms of production, the economy doesn't grow.

The only reason the deficit countries are able to do what they're doing is because China and Japan are buying up their debt with their massive exports and personal saving. Were those countries not extending credit, we'd be already in visibly dismal shape, and rapidly getting worse. Instead, the damage is mostly hidden, but the economy is terribly unstable.

Money is not wealth. Printing money doesn't create anything but paper.

Governments can't go bankrupt, but they can burn the economy around them to ash in not doing so. They bankrupt the economy by stealing wealth out of it until it collapses.

Wrong answer again.

France and Greece are on the Euro so they cannot deficit spend without the okay of the other countries. Also Greece was not a social-Democratic state. They have been ruled by the Conservatives until most recently.

However the Scandinavian countries were smart enough not to get into the Euro and do not have too much debt in other countries currencies. They can control their own finances without the politics of the other countries.

Also see my answer above about that fallacy you believe about Savings leading to investment.

Also no China and Japan do not extend Credit to America. What extended Credit in America are American banks. What China and Japan and Saudi Arabia have are Checking and Savings Accounts at the Fed for the trinkits, electronics and Oil we buy from them.

Malor wrote:
Savings is a monetary phenomenon while Capital is real goods and services.

No. Nononono. Savings is deferred consumption, things you could have used to make cars or toys or cookware, but instead chose to make tractors and tools to create new wealth with.

Money is NOT WEALTH, it is a CLAIM on wealth. People save in dollars because they're liquid, but they can save any good instead.

Hell, just getting a doggie bag at dinner is a form of saving.... that's food money you won't have to spend later.

And we went through the 'governments can't save' thing already, and I absolutely conclusively showed you that they can.

Investment makes tractors not Savings. Savings as you said is Consumption.

Go call the CBO, the Treasury and Fed and tell them that they have it all wrong and they can save money.

Also Greece was not a social-Democratic state.

But they were doing exactly what you prescribe, printing money to pay all their bills. Now look at them -- they're a complete wreck, with a population that thinks they're entitled to huge benefits for no work.

Let's go back to basics. What do you think fiat money is? What do you think gets added to the economy when more of it is injected?

Malor wrote:
Also Greece was not a social-Democratic state.

But they were doing exactly what you prescribe, printing money to pay all their bills. Now look at them -- they're a complete wreck, with a population that thinks they're entitled to huge benefits for no work.

Let's go back to basics. What do you think fiat money is? What do you think gets added to the economy when more of it is injected?

The reason for high structural deficits in Greece was a culture of not paying taxes. A culture that the right wing aspire too. Social-democratic countries do not have this culture. Check out what the German multi-millionaire Peter Krämer said about Gates and Buffet charity pledge.

http://www.spiegel.de/international/...

SPIEGEL: Forty super wealthy Americans have just announced that they would donate half of their assets, at the very latest after their deaths. As a person who often likes to say that rich people should be asked to contribute more to society, what were your first thoughts?

Krämer: I find the US initiative highly problematic. You can write donations off in your taxes to a large degree in the USA. So the rich make a choice: Would I rather donate or pay taxes? The donors are taking the place of the state. That's unacceptable.

SPIEGEL: But doesn't the money that is donated serve the common good?

Krämer: It is all just a bad transfer of power from the state to billionaires. So it's not the state that determines what is good for the people, but rather the rich want to decide. That's a development that I find really bad. What legitimacy do these people have to decide where massive sums of money will flow?

SPIEGEL: It is their money at the end of the day.

Krämer: In this case, 40 superwealthy people want to decide what their money will be used for. That runs counter to the democratically legitimate state. In the end the billionaires are indulging in hobbies that might be in the common good, but are very personal.

SPIEGEL: Do the donations also have to do with the fact that the idea of state and society is such different one in the United States?

Krämer: Yes, one cannot forget that the US has a desolate social system and that alone is reason enough that donations are already a part of everyday life there. But it would have been a greater deed on the part of Mr. Gates or Mr. Buffet if they had given the money to small communities in the US so that they can fulfil public duties.

Fiat money comes from the power to print and tax that money. That is it. Alexander Hamilton knew. That is why he proposed the First Bank of the United States. With this (not commodity money) USA was able to become a sovereign state.

http://politics.usnews.com/opinion/a...

Again: what do you think fiat money is? What do you think gets added to the economy when more of it is injected?