Is a US economic implosion (aka Greece) inevitable?

[Darth Wong]

People like AndroAsc always call for huge, drastic slashing cuts to everything, but they don't realize that such drastic action would plunge the country into a deep recession or depression, which would only make the situation worse.

It's always so easy to come up with solutions when you don't understand how things work. And in his case, he seems determined to preserve that state of ignorance. Notice how carefully he avoids being drawn into a discussion of structural issues.

[Ariphaos]

I do not have any formal education in economics,

Really, with the bullshit you spew, this is self-evident and does not need stating.

From my perspective, it seems that a US economic implosion is inevitable, assuming nothing changes. What I mean is that we will end up like Greece or worse. But yet nobody seems to care or nobody seems to realize this. I was not born in this country, so perhaps that is why I do not share the American optimism that I see everywhere.

Many fellow Americans I talk to agree with the idea that there is going to be a reckoning in America's not-so-distant future. I'm not really sure what optimism you're speaking of.

Of course, I've seen rather few Americans predict a full-blown economic collapse.

Firstly, record high debt and running deficit every single year for over a decade now. Debt to GDP ratio is close to the WW2 highs.

You haven't expressed why this is a problem.

Hint: It's only a problem when a lack of faith in the ability to repay that debt manifests. Which takes the form of high interest rates. The ten-year yield has been below 2% quite a lot recently.

But unlike WW2 and the post-WW2 recovery, we have outsourced all of our jobs to China and other third world countries.

America's 132 million employed spend their workdays just twiddling their thumbs?

Are our war efforts bringing a boost to the American economy like it did during the WW2 era? No... it is unlikely that America will enter into another Golden Age of growth as it did in the past, and at the best it will take another decade of slow but steady growth to recover from this debt.

All that's needed for another golden age of growth is for the US to rally behind a cause of sufficient magnitude. Enviromentalism and infrastructure repair would be ideal, but I imagine it will take the form of a major space exploration push.

Secondly, poor fiscal management at every level by the govt. Congress doesn't want to touch Medicare and SS even though it is broken, so Congress will just let the train continue until it slams into the wall. Congress doesn't want to withdraw from the Middle East even though we have spent trillions and gained nothing substantial. Is the US any closer to controlling the oil assets of the Middle East? NO! Instead it has help spread anti-Americanism in that region, and now many oil rich nations are buddying up with China and Russia, which is in my opinion the real enemy. Congress doesn't want to raise taxes even though the last Bush tax cuts were temporary. So how on earth does America expect to fix it's economy if it is unwilling to take steps to address it? The American economy is sick, diseased and dying. If we don't take our medication or seek treatment, it is going to wither away, and that seems to be the direction this country is heading towards to.

Bad decisions and bad policy sucks, news at eleven.

This will come as a shock to you: It's possible to recover from these things. Germany after World War II. China after the Great Leap Forward.

Lastly, I have always seen the argument that the US can print its own money but countries like Greece cannot, so that is why US will never fail. So that's why the US will not end up like the Eurozone too, cause we have the almighty power to print money. Big deal! This leads me to the most important point of how the monetary system is screwed up.

Oh, here we go...

Whenever the US government wants to print money it has to take a loan from the Federal Reserve,

No. When the Federal reserve releases a dollar, it is counted as a liability - because, shock horror, someone might exchange that dollar for say, a dollar's worth of taxation.

Funny how that works. Do take the time to let that concept sink in.

that despite its name is a private banking cartel.

It's a public-private operation. That it needs to be more open and transparent is a major problem. The private banking industry being involved with it does not in and of itself 'taint' it. The Fed is a decent source of revenue for the US government.

So this means that the US government will always be financially indentured to this banking cartel.

To the tune of giving the US government some $50 billion a year! That's some indenturement.

Can anyone tell me WHY? Why has the US government gave up its SOVEREIGN right to issue its own currency to a group of people who are unelected and have zero accountability to the American people?

Because the US hasn't.

Transparency issues aside, the Fed is not immune from political backlash - if Congress cracks it open, it gets cracked open. It is not 'unaccountable'. It took the White House's (Obama's) intervention to prevent ALL Fed loan details from being released.

Basically the fed sells bonds to banks at interest (the reserve rate), and these banks expect to make a profit off of that. And the Fed makes a profit, too, and that profit goes into the US government's coffers.

To me, it seems that this country is doomed. I truly cannot understand why Americans are not trying to leave the US in droves. Am I missing something?

Yes. You're an idiot.

Unless a miracle happens, which would be fixing Medicare and other social entitlement programs, a complete abandonment on the ongoing military campaign in the Middle East and the dissolution of the Federal Reserve, I do not see any way out of this shitthole that America has dug itself into.

America has a long, proud history of eventually doing the right thing, to paraphrase Churchill.

And to add a last rant about my observations about America and its common political discussion is that nobody ever seems to be discussing these topics, which I think would be the most pertinent for America's future. There's always so much useless discussion about abortion (pro-life vs pro-choice), the right to teach creationism in schools crap, and legalizing gay marriages. I can't help but yell in my head "Who the fuck cares about this shit? America has much bigger problem right now than to deal with abortion, creationism and gays!"

Because a country, made up of hundreds of millions of people, is, shock horror, capable of walking and chewing gum - and a few other things - at the same time?

I am using debt-to-GDP as the primary indicator to compare the similarity between US and Greece. What about the projections by the CBO that within 20+ years US debt-to-GDP ratio will hit 150% if status quo is maintained?

[/quote][/quote]

See above. A high debt-to-income ratio is a problem when investors lose confidence in that debt's ability to be paid.

Compare to Japan's ratio, for example.

Then compare to Italy - which would have no problems paying off its debts, but for investor fears that it can't. This raises its interest rates, which raise more fears, and becomes a death spiral.

[AndroAsc]

People like AndroAsc always call for huge, drastic slashing cuts to everything, but they don't realize that such drastic action would plunge the country into a deep recession or depression, which would only make the situation worse.

It's always so easy to come up with solutions when you don't understand how things work. And in his case, he seems determined to preserve that state of ignorance. Notice how carefully he avoids being drawn into a discussion of structural issues.

So what's your fucking problem? I already said I do not know enough about the structural issues to have a proper discussion.

So if you are so fucking smart and knowledgeable, why don't you enlighten me on how the US will survive in the future when the debt to GDP ratio is 150-200%. What will happen to the US economy then? How will it be different from now? If it doesn't collapse or implode like Greece, what will happen instead?

[AndroAsc]

Erm... but wasn't there a decade long War on Terror from 2000-today? Wouldn't that justify higher taxes too?

No. The War on Terror wasn't an official declaration of war, the Afghanistan and Iraq wars were against two nations that were significantly weaker than Germany was during WW2, and finally, the Afghanistan and Iraq wars cost a fuckload less than WW2 did.

That is just a technical definition. The point is that the War on Terror cost money just like any other war.

[AndroAsc]

But unlike WW2 and the post-WW2 recovery, we have outsourced all of our jobs to China and other third world countries.

America's 132 million employed spend their workdays just twiddling their thumbs?

Fine... outsourced MOST of our jobs. Just look at the manufacturing industry in WW2 compared to today. Majority of it has gone to China.

Bad decisions and bad policy sucks, news at eleven.

This will come as a shock to you: It's possible to recover from these things. Germany after World War II. China after the Great Leap Forward.

Based on the track record of Congress since 2008 this is unlikely. Our civilian employment rate (note: not unemployment rate cause those stats are fudgy) have remained at 50%-ish since 2008. It was 60%-ish before the crash. There has been ZERO improvement to the US economy for almost 4 years now. Which is why I said I do not share your optimism.

No. When the Federal reserve releases a dollar, it is counted as a liability - because, shock horror, someone might exchange that dollar for say, a dollar's worth of taxation.

Funny how that works. Do take the time to let that concept sink in.

It's a public-private operation. That it needs to be more open and transparent is a major problem. The private banking industry being involved with it does not in and of itself 'taint' it. The Fed is a decent source of revenue for the US government.

To the tune of giving the US government some $50 billion a year! That's some indenturement.

Because the US hasn't.

Transparency issues aside, the Fed is not immune from political backlash - if Congress cracks it open, it gets cracked open. It is not 'unaccountable'. It took the White House's (Obama's) intervention to prevent ALL Fed loan details from being released.

Basically the fed sells bonds to banks at interest (the reserve rate), and these banks expect to make a profit off of that. And the Fed makes a profit, too, and that profit goes into the US government's coffers.

Interesting points you've raised, but I am not convinced. $50 billion is token change compared to our trillion dollar deficit. Your points do not address the point that the Federal Reserve is still not under control by the US govt. You assume that Congress can crack it open, but they have not. If Congress really had power, would it not make sense that they would have dissolved the Federal Reserve and replace it with a real branch of the government? I think it is ludicrous that the govt has to loan money from a private entity to print its own money.

America has a long, proud history of eventually doing the right thing, to paraphrase Churchill.

You said EVENTUALLY. What makes you think we will apply the brakes in time? All indicators for the last few years indicate there has been zero progress in addressing America's economic woes.

See above. A high debt-to-income ratio is a problem when investors lose confidence in that debt's ability to be paid.

Compare to Japan's ratio, for example.

Then compare to Italy - which would have no problems paying off its debts, but for investor fears that it can't. This raises its interest rates, which raise more fears, and becomes a death spiral.

[/quote]

Alright, this makes some sense. Thanks for explaining. But would not that set US on a path for extended stagflation like Japan?

[Darth Wong]

People like AndroAsc always call for huge, drastic slashing cuts to everything, but they don't realize that such drastic action would plunge the country into a deep recession or depression, which would only make the situation worse.

It's always so easy to come up with solutions when you don't understand how things work. And in his case, he seems determined to preserve that state of ignorance. Notice how carefully he avoids being drawn into a discussion of structural issues.

So what's your fucking problem? I already said I do not know enough about the structural issues to have a proper discussion.

And yet you have a firm opinion anyway: so firm that you feel you can confidently tell everyone that something is "inevitable". That is my fucking problem.

So if you are so fucking smart and knowledgeable, why don't you enlighten me on how the US will survive in the future when the debt to GDP ratio is 150-200%. What will happen to the US economy then? How will it be different from now? If it doesn't collapse or implode like Greece, what will happen instead?

I see that most of the things people have said in this thread have completely escaped you. But by all means, continue idiotically assuming that you can predict the future by simply extrapolating. By your moron logic, if a family has had two very expensive children over 4 years, then you can extrapolate that they will have twelve children 20 years from now, and they will be bankrupt.

[AndroAsc]

And yet you have a firm opinion anyway: so firm that you feel you can confidently tell everyone that something is "inevitable". That is my fucking problem.

That's your fucking problem then not mine. If you do not like how I speak, too bad. I'm not here to please you.

I see that most of the things people have said in this thread have completely escaped you. But by all means, continue idiotically assuming that you can predict the future by simply extrapolating. By your moron logic, if a family has had two very expensive children over 4 years, then you can extrapolate that they will have twelve children 20 years from now, and they will be bankrupt.

And so what is your analysis? Please share them... Congress will miraculously take the right measures just in the nick of time to prevent a collapse of the US economy and the Golden Age of America will be restored?

Assuming status quo, permanent tax cuts, entitlement programs becoming exponentially more expensive and never-ending expensive wars... what do you think it will end up with? Yes, another poster pointed out that debt-to-GDP is OK as long as the world has the confidence that the US govt will repay it. But what happens when it hits 200%? 300%? Don't you think this confidence will be shaken?

It seems that your opinions are founded on nothing but FAITH that Congress will eventually do the right thing. I'm basing my opinion on existing FACTS and extrapolating them. Which relates to my original post as to why I think a economic collapse is inevitable (not imminent) if things continue as they are...

[Darth Wong]

And yet you have a firm opinion anyway: so firm that you feel you can confidently tell everyone that something is "inevitable". That is my fucking problem.

That's your fucking problem then not mine. If you do not like how I speak, too bad. I'm not here to please you.

No, it's your problem, because you are expected to back up claims when challenged, instead of appealing to your own ignorance as an excuse for not doing so. That is, in fact, a rule around here. If you don't like it, there's the door.

I see that most of the things people have said in this thread have completely escaped you. But by all means, continue idiotically assuming that you can predict the future by simply extrapolating. By your moron logic, if a family has had two very expensive children over 4 years, then you can extrapolate that they will have twelve children 20 years from now, and they will be bankrupt.

And so what is your analysis? Please share them... Congress will miraculously take the right measures just in the nick of time to prevent a collapse of the US economy and the Golden Age of America will be restored?

No, I'm just pointing out that the revenue/expense stream has never been constant in history, shifting this way and that, yet your "analysis" actually assumes that it will suddenly and miraculously get locked in and stay constant from now on. You're full of shit.

Assuming status quo, permanent tax cuts, entitlement programs becoming exponentially more expensive and never-ending expensive wars... what do you think it will end up with? Yes, another poster pointed out that debt-to-GDP is OK as long as the world has the confidence that the US govt will repay it. But what happens when it hits 200%? 300%? Don't you think this confidence will be shaken?

Oh of course, why don't we just assume that all of your made-up bullshit is correct? Yes, that's exactly how smart people analyze things.

[Duckie]

As far as I know, Japan isn't in particularly huge stagflation. For one, they're not having heavy inflation. You're misusing terminology here. Stagflation for one as far as I know primarily occurs in terms of assymetric supply shocks, and that's not something that lasts a long period or currently is happening in Japan anyhow.

The term you're looking for is 'economic stagnation', and news of Japan's economic demise has been greatly exaggerated. The lost generation is terrible and pretty much all those people are screwed because nobody will hire someone who's been unemployed for so long (the same problem will happen in the US and many other countries nowadays), but Japan the nation has been reasonable since the crisis ended. It's mostly being compared to other countries around it that makes Japan look like it never recovered- while Japan is growing, it isn't growing as fast as South Korea or China which makes it look like it's not growting. The Japanese growth rate is very similar to that of the US's, Canada's, or Germany's, or any other wealthy industrialised nation. (Which isn't to say everything is fine in Japan, there's demographic problems and whatnot, but the debt isn't one of them)

The stagnation was not caused by the large debt either incidentally, and Japan's ability to pay its debts isn't diminished particularly by its debt-to-GDP ratio. Neokeynesian economists in particular believe Japan's economic strength is heavily underrated, for reasons I don't particularly understand.

However, your ideas of 'cut entitlements' is a terrible idea. Cutting spending will tank the economy, and cutting the particular part of the spending that many people need to avoid poverty will cause even more problems- less spending, less investment and more saving, less growth, smaller economy, less spending, etc. It'd be an austerity spiral.

[Ariphaos]

Fine... outsourced MOST of our jobs. Just look at the manufacturing industry in WW2 compared to today. Majority of it has gone to China.

This
isn't
true
either.

The entire world is losing manufacturing jobs - yes, with the US at an increased rate. We're requiring less and less people to build stuff.

Would it be nice to address China's currency manipulation? Sure. But China is only responsible for a couple million jobs.

Based on the track record of Congress since 2008 this is unlikely.

A whole four-year track record! Wow, what a legacy.

Even now, polls are showing that Americans are beginning to recognize Republican obstructionism. Even republicans themselves are getting disgusted with it. "If this trend is allowed to continue, the country will end!"

Signs tend to point to that trend not being allowed to continue. It's difficult to eject entrenched power in the United States, it has never been impossible.

Our civilian employment rate (note: not unemployment rate cause those stats are fudgy) have remained at 50%-ish since 2008. It was 60%-ish before the crash. There has been ZERO improvement to the US economy for almost 4 years now. Which is why I said I do not share your optimism.

I already pointed out that this was a lie in J and Starglider's latest sky is falling update. The United States has added two and a half million jobs over the past year. It sucks, it's not much of a recovery, but the US economy has not been stagnant.

Interesting points you've raised, but I am not convinced. $50 billion is token change compared to our trillion dollar deficit. Your points do not address the point that the Federal Reserve is still not under control by the US govt. You assume that Congress can crack it open, but they have not. If Congress really had power, would it not make sense that they would have dissolved the Federal Reserve and replace it with a real branch of the government? I think it is ludicrous that the govt has to loan money from a private entity to print its own money.

I take it that this means you are conceding your original claims, then?

The Federal Reserve's semi-independence, and the income it generates for the US Government, is a separate concept from our debt burden. The Fed does not need to be a full branch of the US government in order to see regulations enforced, as was demonstrated for the fifty-year period following the New Deal.

You said EVENTUALLY. What makes you think we will apply the brakes in time? All indicators for the last few years indicate there has been zero progress in addressing America's economic woes.

Brakes in time for what? You seem to magically associate debt with disaster. You have not provided any evidence, except for a country who does not have control of its own currency. I have provided a counterexample.

Alright, this makes some sense. Thanks for explaining. But would not that set US on a path for extended stagflation like Japan?

Japan has a deflation problem, not stagflation. Its problem basically is that the money it prints is not getting to people who will spend it, thus returning the economy to growth. The United States is on a similar path, but the solution is not 'cutting spending'. The solution is orienting spending such that it ends up in the hands of those who will spend it. There are many ways to do this.

[AndroAsc]

However, your ideas of 'cut entitlements' is a terrible idea. Cutting spending will tank the economy, and cutting the particular part of the spending that many people need to avoid poverty will cause even more problems- less spending, less investment and more saving, less growth, smaller economy, less spending, etc. It'd be an austerity spiral.

Ok let's focus on this particular economic aspect which I never really understood the logic of. So if you don't want to cut spending, you will simply having to print more money and incur more debt whenever you loan from the federal reserve. How is that solving the problem? You are just delaying the inevitable. It's like having $4000 of credit card debt and only have $1000 of spare income to pay down the debt. Instead of cutting my expenses and try to pay off the debt, I borrow another $4000 from the credit card company to pay off the first debt... it's going to be a neverending debt spiral because the loan interest will compound whenever you borrow new debt to pay off old debt.

You claim that austerity measures will be a death spiral, that I do not understand. Isn't the low spending and low growth a result of this debt? Americans are unwilling to spend because the situation is so bleak. So if you keep on spending, the debt will magnify and things will not improve, and there will be even less spending. Wouldn't there be more spending, growth, investment if there was less debt because confidence of US economy would improve?

[Darth Wong]

"The Economist" magazine keeps ranting that widespread ignorance of the dangers of austerity obsession is going to bring down the economies of both Europe and the USA, and you're providing a perfect demontration of that. Rather than make the slightest effort to learn why this might be, you just challenge people to convince you.

[Eris]

To back up duckie's point about stagflation, here's a graph of Japan's inflation rate over the past two decades.



You'll notice that they've had an mean inflation (the line in that red box and whiskers) of less than 1% on average, and lately have had deflation. Hardly a staglfationary situation without any inflation. And it won't any time soon, either, for reasons I'll get into when I talk about expansionary austerity in a minute since that's been brought up. It requires a longer response so I'll get to that shortly after I get myself some tea. Short version is that it's as contrary to reality as the idea that Japan has had inflation.

[AndroAsc]

Our civilian employment rate (note: not unemployment rate cause those stats are fudgy) have remained at 50%-ish since 2008. It was 60%-ish before the crash. There has been ZERO improvement to the US economy for almost 4 years now. Which is why I said I do not share your optimism.

I already pointed out that this was a lie in J and Starglider's latest sky is falling update. The United States has added two and a half million jobs over the past year. It sucks, it's not much of a recovery, but the US economy has not been stagnant.

I already said unemployment rates are bullshit and you gave me a link that talked about that. It's nothing but damned lies. The unemployment only dropped in Jan because lots of people have existed the job market. You do know that unemployment rates remove the jobless people from the calculation once they stop looking for a job right? If in Dec I had 100 workers unemployed out of 1000, the rate was 100/1000=10%. In Jan, 90 workers stopped looking for job, 10 more workers were laid off so the rate is now 20/910=2%. So is this better?

The better statistics is employment rate, because that reflects how many people having jobs, and it has not improved since 2008. In the example above, Dec would have an employment rate of 900/100=90% and Jan would have an employment rate of 880/1000=88%.

I take it that this means you are conceding your original claims, then?

The Federal Reserve's semi-independence, and the income it generates for the US Government, is a separate concept from our debt burden. The Fed does not need to be a full branch of the US government in order to see regulations enforced, as was demonstrated for the fifty-year period following the New Deal.

No I am not. Say that the US needs to print $1000. It borrows from the Fed at a 3% interest. This means that the US networth is already negative. The next time it needs to print more money to pay off the first batch, it would need to print $1003 and it is going to owe the fed $1006.

My point is that the US should just print $1000 and be done with it. The Fed does nothing but add to the debt for the nation.

Brakes in time for what? You seem to magically associate debt with disaster. You have not provided any evidence, except for a country who does not have control of its own currency. I have provided a counterexample.

But your entire assumption is predicated that the international community will not lose faith in the credit of the US govt. If the US govt had a debt-to-GDP of 1000%, are you telling me things will be the same? I am sure everyone would lose faith then. So where is the line drawn?

[AndroAsc]

"The Economist" magazine keeps ranting that widespread ignorance of the dangers of austerity obsession is going to bring down the economies of both Europe and the USA, and you're providing a perfect demontration of that. Rather than make the slightest effort to learn why this might be, you just challenge people to convince you.

If you are going to take a loan to pay off your first loan, and a third to pay off the second, you will only accumulate more and more debt. How is that a solution?

[Ariphaos]

I already said unemployment rates are bullshit and you gave me a link that talked about that. It's nothing but damned lies. The unemployment only dropped in Jan because lots of people have existed the job market.

The United States, according to its own official unadjusted household statistics, has added 2.4 million raw jobs in the period between January 2011 and January 2012.

Your claim:

There has been ZERO improvement to the US economy for almost 4 years now. Which is why I said I do not share your optimism.

This is demonstrated as false. There has in fact noticeable improvement in the last year.

I await your concession.

No I am not. Say that the US needs to print $1000. It borrows from the Fed at a 3% interest.

Finally, a concrete claim.

I await one of two things:
1) Finding a reputable source for this.
2) You admitting that you are a liar.

My point is that the US should just print $1000 and be done with it. The Fed does nothing but add to the debt for the nation.

Considering I have already demonstrated otherwise, and you acknowledged this, you are already lying here.

But your entire assumption is predicated that the international community will not lose faith in the credit of the US govt. If the US govt had a debt-to-GDP of 1000%, are you telling me things will be the same? I am sure everyone would lose faith then. So where is the line drawn?

By the interest rates currently charged to Japan and the US, certainly nowhere near 200%.

Regardless, I await your concession and your source for the Fed charging 3% interest for every dollar printed. Not that that would mean much - it would still be less than the Government earns from the Fed. But your source would be appreciated nonetheless.

[Darth Wong]

"The Economist" magazine keeps ranting that widespread ignorance of the dangers of austerity obsession is going to bring down the economies of both Europe and the USA, and you're providing a perfect demontration of that. Rather than make the slightest effort to learn why this might be, you just challenge people to convince you.

If you are going to take a loan to pay off your first loan, and a third to pay off the second, you will only accumulate more and more debt. How is that a solution?

It's not a solution to debt. But I have news for you: "debt" is not a synonym for "economy".

Since you are obviously too fucking stupid to figure out the hints people keep dropping, and you're also apparently too goddamned lazy to look it up for yourself, spending (yes, including deficit spending) boosts the economy right now. It is not the same thing as Dad spending too much money on beer (which is how you seem to view it) because when Dad spends money on beer, it disappears from the family, but when a government spends money, it mostly stays in the country; it is being put in the hands of citizens of the country, who will then spend it.

The reason we don't like deficit spending is that debt costs more money in the form of servicing costs down the road, but that doesn't change the fact that spending boosts the economy now. Get it? If you slash spending now, the economy tanks now. You can try to argue "well, maybe there are benefits down the road", but that doesn't change the fact that you would plunge the economy into a recession right now. And if the economy tanks right now, then your tax revenues dry up because those revenues are calculated as a percentage of the money that everyone is making. And your deficit problem gets worse, not better.

Don't worry though, I don't expect a concession of any kind. I expect you will just continue in your bull-headed obstinacy.

[AndroAsc]

The United States, according to its own official unadjusted household statistics, has added 2.4 million raw jobs in the period between January 2011 and January 2012.

This is demonstrated as false. There has in fact noticeable improvement in the last year.

I await your concession.

Oh please it was 240k jobs, and that figure is bullshit:
http://www.prisonplanet.com/contrary-to ... nuary.html
1) Actual number of reported jobs decreased by 1.1 MIL.
2) The seasonally-adjusted job figures increased by 240k, which is nothing but a "best fit curve" in the rather volatile curve of actual jobs reported.
3) If you look at the employment rate it is below 58% in Jan 2011 and Jan 2012. NOTHING has changed. Sure there has been some fluctuations, but on the whole the trend is FLAT. We are nowhere near the 62% employment rate in the pre-2008 era.

No I am not. Say that the US needs to print $1000. It borrows from the Fed at a 3% interest.

Finally, a concrete claim.

I await one of two things:
1) Finding a reputable source for this.
2) You admitting that you are a liar.

It was an EXAMPLE. I did not claim that the Fed charges a 3% interest. Can't you understand English?
"SAY THAT the US needs to print $1000. It borrows from the Fed at a 3% interest."

Obviously a hypothetical example to illustrate my point on debt snowballing whenever the US govt needs to print money, but no you either refuse to see the point or nitpick. Now I would like you to refute why this debt snowball is an inaccurate assessment (if at all).

[Duckie]

... did you just quote alex jones as a credible source on anything besides lizard people and admirality court theories?

[Terralthra]

You'd like someone to refute your hypothetical example that you admit yourself has no real relationship with reality? Uh, I'll do that. "It's an inaccurate assessment because it has no relationship with reality, and is something you made up as a 'hypothetical' example to support your point, counting on everyone else being as ignorant as you are."

[Ariphaos]

Oh please it was 240k jobs, and that figure is bullshit:

1) I said January 2011->January 2012
2) Another member, J made the same bullshit claims, using the same sorts of bullshit sources, in the thread I linked to above. I debunked this bullshit thoroughly, in that thread. If you want to know why your source's claims are bullshit, look at that thread. Hint: These 'mystery job losses' have come nearly every single year. It's because they are based on household data, and the population gets re-estimated each year.

It was an EXAMPLE. I did not claim that the Fed charges a 3% interest. Can't you understand English?
"SAY THAT the US needs to print $1000. It borrows from the Fed at a 3% interest."

Find any interest rate. Any at all.

A printed and distributed dollar is actually listed as a liability on the Fed's balance sheet. No interest is accrued to it, it is simply a reflection of outstanding currency - i.e. it can be turned in at a later time, such as for taxes.

This would be no less true than if the Fed were 100% government-controlled and the currency were fully backed by gold.

[Serafina]

If you compare government spending to household spending, you should at least use a somewhat realistic comparison. Like spending money on household items, or maybe gas money so that you can drive to work, or food so that you won't starve, or fixing the heating so that you won't freeze to death.

Whenever someone compares government spending to "dad spending all the money on beer" or "using a credit card to buy jewelry", he's revealing two things about himself:
- he is principally opposed to government spending and doesn't understand how it actually keeps the country running.
- he doesn't understand economics 101.
Or in other words, anyone making such a comparison isn't worth debating economics with.

[Eris]

EDIT: This isn't perfectly addressing the particulars of the US case at the moment, I realise, but it's the basics you must understand to grasp what's going on. I'll get around to the US and pertinent historical examples eventually.

Okay, first (second) post, let's talk about the liquidity trap and interest rates. You (AndroAsc) claim that the solution to our problem is not taking loans, but instead cutting our spending. This is common meme, usually packaged in the form of 'if the US were a household, that house should not take out more debts to pay its debts,' or something like that. This falls apart because the US is not a household.

Why is the US not a household? For starters, it controls its own interest rates. The fed sets the rates on US gov't bonds, which are how the gov't accumulates debt, selling off bonds mostly to large banks who want low risk assets. This generally trickles down to all interest rates since this is the rate at which banks borrow, so it determines what they're willing to lend at. Typically, the higher the interest rate, the lower the inflation rate since you're encouraging banks to buy debt instead of invest, taking money out of circulation and letting it sit, producing fewer dollars chasing more goods and thus inflation adjusts. Conversely, low interest rates encourage less saving, since you'll be making less money that way, and so you tend to have banks loan more money at lower interest rates, pumping more money in the economy so consequently increasing inflation.

Why would we ever want the situation of increased inflation? Because that creates jobs. More loanable funds in the economy means that people can invest in new business ventures, hiring more people. There's a basic tradeoff between employment and inflation (broken during things like stagflation, but we're not in that right now so let's ignore that) that led to the saying about what happened when the economy overheated back in the sixties was that the Fed made us all suffer with unemployment for a while till they felt inflation was under control and then let business return to usual.

But there are two kinds of interest rate that interact, the real interest rate and nominal interest rate. The real interest rate is the interest rate after adjusting for inflation. Say you have an interest rate of 6% and inflation of 3%. Well, then your real interest rate, since money is losing its value, is now 2.9%. The nominal interest rate is just the face value, so in this example the nominal rate is 6%. Importantly, the nominal rate cannot go below 0, for what I hope are obvious reasons.

Two interesting consequences of all this. First, your thing about taking on debt to pay off debt? It doesn't not hold always. Consider the case of a nominal interest rate of 1% (the fed is trying to encourage growth), and an inflation rate of 3% (not much growth is happening). Your real interest rate is -1.5%. For every dollar the US borrows just then, it has to pay off only 98.5 cents. You are literally being given free money. So yes, you can actually reduce your long term debt position by borrowing when there are real negative interest rates.

Now, the second consequence. We must remember that there's a point at which your inflation and employment balance, that in a given economy having full employment will mean so much loaning going on for investment, and that in large part determines inflation. So, what happens when you'd need a nominal negative interest rate to give you the inflation you need to produce full employment? You can't have one of those, so monetary policy cannot on its own achieve full employment. This is a liquidity trap. There is plenty of loanable funds out there, but they're sitting in the banks, because the banks would rather make a tiny amount or lose a small amount of money in government bonds instead of loaning them out. The liquid assets are trapped in the banks, as it were. You nominal interest rate is at the zero lower bound you cannot reduce it past, and the economy shudders anaemically forward as it remains mostly stuck in a recession. You'll see deflation of the currency until that adjusts to where prices should be and demand can start increasing, in theory, but that's a long and painful process.

Next post, how this all relates to austerity, and why austerity is a self-defeating position, and why deficit spending actually improves your long term debt position while stuck in a liquidity trap.

[Starglider]

"The Economist" magazine keeps ranting that widespread ignorance of the dangers of austerity obsession is going to bring down the economies of both Europe and the USA, and you're providing a perfect demontration of that.

Austerity is very rarely a policy politicians chose freely. Austerity is just what happens when you start to run out of money, because you can't raise more by borrowing, taxation or monetisation. Various EU countries are forced to engage in austerity because they can't monetise (signed that power away to the ECB aka The Germans), don't have much room to raise taxes because they are already so high, and are in real danger of losing the ability to issue debt at sane interest rates. The UK is unusual in undertaking (a small measure of) austerity prior to being forced to do so by the markets; gilts are benefiting from safe haven demand at the moment. This is a decision by the conservatives that lower economic growth now is worth the reduced risk of a fatal debt spiral later, something the UK has unusually high exposure to due to spillover in confidence loss from a banking collapse to sovereign debt, and the greater proportionate drop in tax revenues resulting from a general financial crash.

The US federal government is unlikely to engage in any significant austerity any time soon because it has unprecedented access to borrowing and both ample capability and recent track record of monetisation. At the limit it has substantial room to raise taxes, although given the political situation I'd expect a lot more monetisation first. Practically the USD would have to lose reserve currency status before the US would be at serious risk of a financial crunch - although US states have much less freedom, as they can't print and have much more vulnerable credit ratings (QE4 is quite likely to focus on US municipal debt for that reason). Resistance to this is huge, particularly as the euro crashed out of being a viable alternative, but on the flip side assorted sovereigns are pushing hard to errode the influence of the US. Practically I expect the combination of eurozone implosion and moderate monetisation to maintain a bull market in US treasuries through the short to medium term, but that's actually bad in the long run as it will allow the US to sustain destructive political and economic trends. Given that plus the demographics and out-of-control healthcare costs, I expect the US government to face existential challenges in the next decade (2020 - 2030).

P.S. Much as I like The Economist, bear in mind that they are dyed-in-the-wool Keynesians who are always for monetisation as long as the finance industry can skim it. Also that publication is usually quoted on SDN in the context of nasty capitalist globalist 1%ers trying to deregulate and dismantle our pure and good socialism, so I doubt they're worth much as positive support.

The reason we don't like deficit spending is that debt costs more money in the form of servicing costs down the road, but that doesn't change the fact that spending boosts the economy now. Get it? If you slash spending now, the economy tanks now.

Assuming you are actually borrowing and not monetising, the money doesn't just appear. Obviously if you raise it through taxation you are preventing people from spending it themselves, wheras if you borrow it you are taking money from people who buy government bonds. Where would they have put their money if less government bonds had been issued? For pension funds it's usually bonds issued by large corporates or other governments, for hot money speculating on interest rates it could go to just about any asset class, for individuals it is likely to be normal savings accounts. Thus it's a question of velocity of money and opportunity costs; to what extent is private capital raising crowded out, where would the money have been spent, what is the multiplier in short-term velocity terms, and what is the return-on-investment in creating or safeguarding productive capital. Government borrowing tends to do quite well on velocity, particularly since banks and corporates are hoarding so much cash right now, but quite badly on return on investment.

[AndroAsc]

Thanks to Starglider and Eris for the explanation. Much appreciated.