62 replies to this topic

[salsabob]

Federal debt is precarious because the private sector is seen as inefficient???

I've heard all the silly arguments why an entity's debt in the currency it issues is precarious, but I've never heard this one.

I'm interested; care to expand on the notion?

It's what Keynesian economics is all about...the government is the only truly efficient mechanism that can make the economy run.

As an example, the talk of late is that no one can build a business by themselves that government must help in doing so.

This is the backbone of Keynesian Economics and why we have a Federal Reserve...why Congress needs to pass stimulus to promote commerce as to regulate the business cycle with fiscal policy.

Fib

Okay, you're obviously a smart guy; you're one of the ones I follow to get TA insight (thanks, and maybe I owe you with another hopeless/thankless mini-effort). So, let's put aside the ideology for a minute and do this from facts and business sense.

Here is the what I consider the best indicator as to what households are doing -



Essentially that is a measure of the degree households are buying more or less. You'll notice it is now below zero and trending down. That bad, and getting grimmer, picture is confirmed by today's report that consumer credit spending dropped an unexpected $3B plus. And you probable know that consumer confidence measures are not supportive of any growth and employment is just barely keeping up with population growth.

This is a bit old but it is exemplary as to the reason why we are in this situation -



- as shown, we have an enormous unprecedented overhang in household debt. Further, to de-leverage that debt, households are, on net, saving - that means they're not, on net, spending. The thing about most modern economies, particularly ours, one person's spending is another's income. Somebody has to spend to provide income. Somebody has to increase spending to grow the economy.

The other possible sector where business could get sales is with exports. The problem is the US is a net importer and has been since the 1980s and no one is predicting that is going to change much. Yes, US business can still export, it has been a bright spot (we'll see what Europe does to that), but on net, we are an import nation and that represents a demand leakage - we cannot support job growth, investment to the extent we could if we weren't importing all those goods and services.

Now that's the macro; how's that translate to the micro.

Let's say your a smart businessman who owns a hamburger joint - maybe a little better or a little worse at attracting that zero growth in spending that PCE measure indicates. Now you've got the chance to hire the most efficient waiter within miles. Would you add to your payroll? Do you think if you did your new waiter would turn around and buy enough of your hamburgers to pay his salary? If you do, then you maybe you should get into the public service game because, sorry, your not much of a businessman.

Or, maybe a salesman has convince you he can sell you the most efficient hamburger flipper in the world for just $50 grand - he's probable as desperate as you for some sales. In the face of your own zero sales growth, however, would you invest your hard-earned savings into a machine that will make your hamburgers more efficiently? Sure, one way to build your profit is to lower your cost, but wouldn't you hesitate given the zero growth in your order book?

Scale that back up to the macro. Again, you got no growth in household spending. Businesses having no reason to invest in hiring or capital. Export sales, on net, negative.

Put the ideological BS that you've been brainwashed with for decades, and tell me where demand growth for your hamburgers is going to come from?

pssss , it doesn't matter how efficient your business if you ain't got the sales - most people figure that out with their first lemonade stand.

So lets become Greece!!!

Deficits reduce confidence, which suppresses economic activity further...

If government spending is the answer, why don't we just pass a $1,000,000,000,000,000,000,000 stimulus and then we will all be rich!!!

Wow, such original insight! I've never heard that before!

Yawn, so the hysteria begins. It usually doesn't take long.

Did you see the poll from OH and NC where 15% of voters think it was Romney that ordered the hit on Osama and another 55-60% said they just didn't know. That's politics so who cares; but that type of ideologue filtering can be deadly in the markets. I realize it is likely hopeless to suggest but you might want to try something called "an open mind" - not only could it open up whole new worlds for you, but it could keep you from doing something really stupid in the markets and handing your money over, well, to me.

First, I was pretty clear that there is a limit to federal deficit spending. It is harmful demand-pull inflation. Maybe you should go back and read the details. It is too boring for me to go over it again particularly with someone whose mind is shut like a steel trap. Your "sextillion" is like the guy screaming hysterically at the firemen not to put out the fire that's consuming his house because it might cause a flood. The firemen would likely b-slap you so they can get back to work and when you finally came to your senses, you'd thank them. Unfortunately, I don't provide that service.

Second, we can not be like Greece. That nation and every other EuroZone nation including Germany handed over their monetary sovereignty to the ECB; they now owe nearly their entire sovereign debt in a foreign currency - it's called the Euro - and as history has shown that ain't good - just check the news. Our problem in the US is that the ignorant concern for becoming like Greece is actually helping us to become like Japan - now that is not only possible but likely underway.

Here's the real deal. Look at the chart again showing the unprecedented overhang in household debt. The real questions begin with does that need to get back to trend before we see real household spending again? Or, will households go on another borrowing binge before getting to trend and set up another financial meltdown? How can even that trend line be sustainable when it gets us back to 2006 debt levels in just a few years? Will there be an overshoot to revert back to the mean?

Then there's this -



- that's the real reason Bernanke does what he does. The markets are a side-show to that. At best, they might create some wealth effects; at worst, some asset bubbles. Might make some gold bugs happy but next to the graph, for the CBers, those things, i.e., what we do, is a sideshow. Understand this, and your next FED meeting won't be so confusing to you. Hint - they want that line to stay down if not go down even more - the more it stays down, the more that other mentioned graph's line comes down without completely killing the economy.

Okay, I'm bored again with my own hopeless/thankless blah, blah, blah. It's back to taking money from the ideologically blinded. The ones with strong TA are pretty tough though. However, every once in a while they let their false mythology cloud their judgement. I'll be there waiting. At least they now know the repository of their lost cash and dreams when they make those market mistakes.

[...]

And "salsabob" proves yet again that he doesn't have a clue about what he's running his keyboard about.

That Fed chart shows that total household debt is in the best shape it's been in since 1995. Consumer (mainly credit card) debt is in even better shape than that. Mortgage debt is worse. Student loan debt is much, much worse.

But all of that has nothing at all to do with failed Keynesian economics. Or goofy "demand pull" theories of inflation.

There is no free lunch. There is no "multiplier" effect from wasteful, unproductive government spending. It's the opposite of that -- it's all a drag on and a detriment to the economy. Every dollar the government spends is a dollar that could have been better spent by the private sector.

As has been pointed out, if prosperity was so simple to accomplish that it could be done by spending a gazillion dollars (borrowed or not,) every socialist government in history would have been a success instead of a failure.

[fib_1618]

But all of that has nothing at all to do with failed Keynesian economics. Or goofy "demand pull" theories of inflation.

There is no free lunch. There is no "multiplier" effect from wasteful, unproductive government spending. It's the opposite of that -- it's all a drag on and a detriment to the economy. Every dollar the government spends is a dollar that could have been better spent by the private sector.

Thank you.

And having created 3 businesses myself, I won't even get into all the government red tape it takes just to open your doors, no less, maintain it while it's still existing...hamburger flipper be damned.

Fib

[salsabob]

And "salsabob" proves yet again that he doesn't have a clue about what he's running his keyboard about.

That Fed chart shows that total household debt is in the best shape it's been in since 1995. Consumer (mainly credit card) debt is in even better shape than that. Mortgage debt is worse. Student loan debt is much, much worse.

Ah, "household debt" includes credit card and student debt.

Perhaps this graph will help with that "best shape since '95" nonsense -



Get those eyes checked and ask the doc about hysterical blindness - its become one of the leading causes of wealth reductions these days.

But all of that has nothing at all to do with failed Keynesian economics. Or goofy "demand pull" theories of inflation.

There is no free lunch. There is no "multiplier" effect from wasteful, unproductive government spending. It's the opposite of that -- it's all a drag on and a detriment to the economy. Every dollar the government spends is a dollar that could have been better spent by the private sector.

As has been pointed out, if prosperity was so simple to accomplish that it could be done by spending a gazillion dollars (borrowed or not,) every socialist government in history would have been a success instead of a failure.

You know if you put a little effort into it, you can take a lot of that 'thinking' and boil it down to some nifty bumper stickers. There's a huge market for that kind of stuff out there these days. And importantly, it would keep you out of the trading markets and thus avoid having me take all your lunch money.

http://www.youtube.c...feature=related

[fib_1618]

Keneysian Economics in Chart Form.

From spending to entitlements...pick your poison.

Fib

[andiron]

I have said before the Global Bust is all but inevitable as financial asset prices are unrealistically high vis a vis the income of the global populace and since the recent asset price hyperinflation derived from massive credit growth (debt that is)... That said how many capitalists out there sucking govt tits or engaging in oligo/monopolistic behavior - via lobbbying, cronyism, unfair bullying, preferential treatments etc etc.... Only the disadvantaged seem to be the one carrying the burden of capitalism.....

Edited by andiron, 11 September 2012 - 12:14 PM.

[salsabob]

But all of that has nothing at all to do with failed Keynesian economics. Or goofy "demand pull" theories of inflation.

There is no free lunch. There is no "multiplier" effect from wasteful, unproductive government spending. It's the opposite of that -- it's all a drag on and a detriment to the economy. Every dollar the government spends is a dollar that could have been better spent by the private sector.

Thank you.

And having created 3 businesses myself, I won't even get into all the government red tape it takes just to open your doors, no less, maintain it while it's still existing...hamburger flipper be damned.

Fib

Too much red tape? Now there's something we can agree on.

But that's an efficiency issue; it has nothing to do with how many people walk in the door of one of your three businesses with cash to buy. But, you know that.

The problem you have is pretty basic for most people - you believe our federal taxes actually pay for federal spending, and then gets you all riled up over where's the better spending. If the economy was operating at full tilt, then you might have a point about federal spending crowding out "better" private spending - that would be a political argument. For now, and for far into the foreseeable future, you don't have that point - not in an economy that is starving for demand.

Central govts tax for only two reasons: (1) to get everyone to use a common currency and (2) to destroy money in circulation as their primary mechanism to manage demand-pull inflation. The fact that there is a federal deficit alone should clue you in that federal tax revenue doesn't dictate federal spending. If you were to pay your federal taxes in cash at a pay window, they’d pat you on your back for helping to pay for fighter jet or a road or something, but as soon as you left, they’d likely put your cash in a shredder – it’s more efficient to do that since when the feds spend they mostly use computer keystrokes to credit bank accounts – they don’t actually need your cash to spend on anything – way too inefficient these days.

And as far as federal borrowing, you can't buy a federal bond with anything but a federal dollar - where did that dollar come from? If something comes first, it really is not dependent on what comes later. The Chinese buy our debt because they have buku dollars from their trade surplus with us. They can leave that in essentially a non-interest bearing checking account at the FED or they can transfer it to an interest-bearing account, i.e. buy T-bills. They can use those dollars to buy something else but then the seller would have the exact same three choices – it’s a wash for the US.

Believe me, I realize that this reality blows most people's minds and most people's minds just shutdown and get hysterical. It's not rocket science; it obviously doesn't require being the smartest guy in the room. It does take the fortitude to break out of decades of brainwashing however - to take the Red Pill if you know the reference. Most people can't. - and if they're in the markets, I'm there to reap a lot of their money and their dreams. The bond market and hyperinflation/default hysteria have been very good to me.

[fib_1618]

Only the disadvantaged seem to be the one carrying the burden of capitalism.....

Said the Marxist to his minion.

Fib

[salsabob]

Keneysian Economics in Chart Form.

From spending to entitlements...pick your poison.

Fib

Well, at least the article focuses on federal spending rather than debt.

Those charts/pundits that divide the federal debt by population and then say that's what the kids or grandkids are gonna pay, well, let's be kind and just say the idiots have their hearts in the right place - brainless but heartfelt, and I feel bad taking their money.

But that's not you; you focused on "the nut of it" - spending.

No one's tax rates have gone up with that spending, they've actually come down considerable, so that might be a clue.

What inflation we do get is tied to cost-push issues (pump prices, food prices, healthcare, higher education) and not to any generalized sustained price increases across the board that is the demand-pull inflation you get from too much spending (whether it comes from private or public spending). And that would be expected when we are obviously far below our own economy's (and certainly the global economy's) production capacity as clearly evident with 12 million people out of work and at least that many underemployed.

Okay, but what about the future? Well, maybe. Can you tell me in 5, 10, 20, 30 years if the economy will be operating at full tilt or be faced, as we are today, with insufficient demand? If it’s the former, then yea, that spending might cause some inflation; but if it’s the latter, then it’s going to be very welcomed (well, at least by the some people). But heck, again, let’s put that all aside; for if you can know that future (really really awesome fearless forecasting), then why not just tell us precisely where the DOW is going to close today so we can all make a ton of money!

[salsabob]

I have said before the Global Bust is all but inevitable as financial asset prices are unrealistically high vis a vis the income of the global populace and since the recent asset price hyperinflation derived from massive credit growth (debt that is)...
That said how many capitalists out there sucking govt tits or engaging in oligo/monopolistic behavior - via lobbbying, cronyism, unfair bullying, preferential treatments etc etc....

Only the disadvantaged seem to be the one carrying the burden of capitalism.....

Sadly, getting how our monetary system actually works, and perhaps adding in the aggregate demand the economy needs right now, doesn't do a thing to resolve the cronyism. And honestly, the increased economic growth produced could amplify it.

We need highly skeptical people that are evident on this forum (e.g., Fib) to hopefull reign in the unfortunatel downside of what is the only workable choice - capitalism. It's just that most of them are focused on the wrong things. Don't think for a moment that isn't by purposeful design by those that benefit the most from the distractions.