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I'm not an expert, but here's my take: In this ridiculous stupid system we have, the size of the federal budget deficit should probably be roughly:brick-house wrote: Questions for the Monetary Realists (Cullen Roche Fan Club):
What is the proper amount of annual federal deficit?
How is that amount decided?
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(previous year's total money supply * GDP growth * population growth) - private sector contribution to size of money supplyYes: the point where government contributions to the money supply begin to cause inflation. This happens when the private sector is doing just fine creating all the money it needs, but government hasn't stopped spending. You get more money chasing fewer goods, which is inflationary.brick-house wrote: Is there a point where the overall national debt level and corresponding interest burden becomes worrisome?
I think so, yes. Government is fantastically incompetent at nearly everything, so we should expect that all government spending on any project is several times higher than it would take for the private sector to accomplish the same thing. This means lots of waste, in the form of natural resources and manpower. If you are an environmentalist, government waste should appall you.brick-house wrote: Are there negative effects of large government spending to create the deficit versus lower taxes to create the deficit?
Who determines the public purpose? Who benefits from determining the public purpose? Social Safety Net gets wider over time. The military gets bigger and itches for adventure. Generals need wars to build resumes, reputations and acquire mistresses.Have the government spend based on meeting some sort of public purpose. Whether that's a social safety net, roads, or military. Simply attempt to accomplish that public purpose.
Reading this from PragCap (great site and a huge lightbulb about the monetary system - hat tip for that reference) - IMHO large sections of the government exist for its own benefit and there is widespread corruption. In addition, it seems members of Congress have zero clue about the monetary system.The government is an entity created by the people and for the people. It exists to further the prosperity of the private sector – NOT to benefit at its expense. If this entity is allowed to exist for its own benefit or becomes corrupted by a concentration of power or abuse of its currency issuing powers it will become susceptible to dissolution via the populace’s rejection of that government.
Governments should be actively involved in regulating and helping build the infrastructure within which the private sector can generate economic growth. The economy is a complex dynamical system with irrational participants. The market cannot be expected to regulate itself or behave rationally at all times. Therefore, some level of government intervention and involvement is not only beneficial, but also necessary. While government assists in the economic process it is ultimately the private sector that is the primary driver of innovation, productivity and economic growth. It is the private sector that propels increases in living standards with its activities the most important factor in giving value and viability to the currency.
In a democracy, presumably the people determine the public interest. You might make an argument that we don't have a well functioning democracy, but I think that is an entirely different discussion than the nuances of our fiat monetary system.brick-house wrote:
Who determines the public purpose? Who benefits from determining the public purpose? Social Safety Net gets wider over time. The military gets bigger and itches for adventure. Generals need wars to build resumes, reputations and acquire mistresses.
Who decides on the size of government? What politician does not increase spending? Seriously - when was the last time federal spending was reduced?In a democracy, presumably the people determine the public interest. You might make an argument that we don't have a well functioning democracy, but I think that is an entirely different discussion than the nuances of our fiat monetary system.
You could very easily be a libertarian who uses Warren Mosler's framework. 95% of it is politically agnostic. You first decide on the size of government (for a libertarian this would be tiny) and then you only tax to a level that keeps inflation under control, but no farther. A liberal would have a larger government, and would likely need a higher level of taxation to control inflation.
Regardless, the libertarian government would still require deficit spending to prevent the economy from falling into a depression if it were using our current monetary system. The deficit spending would just be in very select areas and would largely result from extremely low levels of taxation.
There's an ideal level, which I described earlier. Then there's the actual level, which is determined by congress, a body made up of fools who understand none of this. The negative consequences of too much deficit spending are higher inflation during a time of prosperity, possibly dangerous levels.brick-house wrote: I get that our current monetary system requires deficits that result in a debt. What I don't get is how the proper annual amount of deficit is determined? If the proper amount is not determined, what are the negative consequences of too much deficit spending? Does the debt ever become an issue, specifically the cost of debt service on a massive national debt?
Why is your description the ideal level?There's an ideal level, which I described earlier. Then there's the actual level, which is determined by congress, a body made up of fools who understand none of this. The negative consequences of too much deficit spending are higher inflation during a time of prosperity, possibly dangerous levels.
Party on. Sounds like a perpetual motion machine...The cost of debt service is a non-factor. Low interest rates keep the cost down no matter the amount of debt, and even once rates rise again, that interest money is itself simply fiat dollars. It's not like there's a scarcity of the stuff.
Because a lower level fuels deflation, and a higher level pushed up inflation. My definition of the "ideal level" is thus one that provides a stable value to the currency, taking into account the increases necessary for GDP and population growth. Do you think that's a bad definition?brick-house wrote: PointedStick wrote:
Why is your description the ideal level?There's an ideal level, which I described earlier. Then there's the actual level, which is determined by congress, a body made up of fools who understand none of this. The negative consequences of too much deficit spending are higher inflation during a time of prosperity, possibly dangerous levels.
I don't disagree with you. My preference would be that the government lowers taxes rather than spending more, to the point of paying people. I totally agree that government spending results in boondoggles and waste. But in principle, as TennPaGa said, $1 of tax cuts is equal to $1 of spending from an operational point of view.brick-house wrote: The other danger of too much deficit spending is that the government has to create reasons to spend the money. This results in mal-investment, corruption, and bigger government - more Post Office less Fed Ex/UPS...
No, it's not. Again, the constraint is inflation. If Congress appropriates too much money during a time when the private sector is creating enough money to satisfy the demands of the economy, the excess money is inflationary. The more spending, the more inflation. It's not inconceivable that once the private sector picks back up, that we'll have severe inflation if Congress keeps spending at its current level.brick-house wrote:Party on. Sounds like a perpetual motion machine...The cost of debt service is a non-factor. Low interest rates keep the cost down no matter the amount of debt, and even once rates rise again, that interest money is itself simply fiat dollars. It's not like there's a scarcity of the stuff.
Looks good on paper, just wanted to know why it was "ideal." I highly doubt this ideal level is ever considered by congress.Because a lower level fuels deflation, and a higher level pushed up inflation. My definition of the "ideal level" is thus one that provides a stable value to the currency, taking into account the increases necessary for GDP and population growth. Do you think that's a bad definition?
In the short run, that operational point of view is correct. Over long period times. it is not just boondoggles and waste. It is permanent government agencies that look to grow. War on Drugs, War on Terror, Department of Homeland Security - again more post office less UPS/Fed Ex. Fiat system does not have to lead to an expanding government, but it does...I don't disagree with you. My preference would be that the government lowers taxes rather than spending more, to the point of paying people. I totally agree that government spending results in boondoggles and waste. But in principle, as TennPaGa said, $1 of tax cuts is equal to $1 of spending from an operational point of view.
Severe inflation is a possible consequence if congress does not reduce spending? I guess I will keep some gold in my permanent portfolio...The cost of debt service is a non-factor. Low interest rates keep the cost down no matter the amount of debt, and even once rates rise again, that interest money is itself simply fiat dollars. It's not like there's a scarcity of the stuff.
No, it's not. Again, the constraint is inflation. If Congress appropriates too much money during a time when the private sector is creating enough money to satisfy the demands of the economy, the excess money is inflationary. The more spending, the more inflation. It's not inconceivable that once the private sector picks back up, that we'll have severe inflation if Congress keeps spending at its current level.
It never is. Congress has no idea of the monetary consequences of what they do! In my mind, that's one of the many major problems inherent in our system--it requires Congress to play a part that its members aren't even aware of, then once their misunderstanding of their monetary role causes damage to the economy, they have authority to try to fix economic problems that are largely their own doing to begin with, and usually wind up making matters worse due to antiquated notions of the effect of spending, taxes, and regulations.brick-house wrote: pointed stick wrote:
Looks good on paper, just wanted to know why it was "ideal." I highly doubt this ideal level is ever considered by congress.Because a lower level fuels deflation, and a higher level pushed up inflation. My definition of the "ideal level" is thus one that provides a stable value to the currency, taking into account the increases necessary for GDP and population growth. Do you think that's a bad definition?
You're right. But then again, how much did a gold standard constrain the growth of government before 1972? In the end, I don't think a monetary system of any kind can constrain a government that's intent on growing that's backed by a population cheering it on. The new deal took place during a hard gold standard. During the civil war and WWII, the gold standard was quickly suspended and replaced by fiat paper. The gold-backed Bretton Woods system gave us wars in Korea and Vietnam, the CIA and the EPA.brick-house wrote:In the short run, that operational point of view is correct. Over long period times. it is not just boondoggles and waste. It is permanent government agencies that look to grow. War on Drugs, War on Terror, Department of Homeland Security - again more post office less UPS/Fed Ex. Fiat system does not have to lead to an expanding government, but it does...I don't disagree with you. My preference would be that the government lowers taxes rather than spending more, to the point of paying people. I totally agree that government spending results in boondoggles and waste. But in principle, as TennPaGa said, $1 of tax cuts is equal to $1 of spending from an operational point of view.
Good points. War pigs find a way... Korea, Vietnam, War on Poverty, the CIA, the EPA, Apollo, etc. (guns and butter) - its amazing the gold window stayed open so long.You're right. But then again, how much did a gold standard constrain the growth of government before 1972? In the end, I don't think a monetary system of any kind can constrain a government that's intent on growing that's backed by a population cheering it on. The new deal took place during a hard gold standard. During the civil war and WWII, the gold standard was quickly suspended and replaced by fiat paper. The gold-backed Bretton Woods system gave us wars in Korea and Vietnam, the CIA and the EPA.
If we want to restrain the growth of government, looking for a superior monetary system isn't the right way. We need to convince people who cheer its growth of its malignancy.
The TDC idea was never really viable. It is clearly incompatible with the long-held principle that Congress controls the USG pursestrings and it strains credulity to suggest that it was somehow the legislative intent of Congress in the 1990's to give away this prerogative through some obscure back door legislation.TennPaGa wrote: Apparently, US Treasury has ruled out minting a trillion dollar coin:
Below are some comments about Treasury's announcement from beowolf, originator of The Platinum Coin idea:The Treasury Department will not mint a trillion-dollar platinum coin to get around the debt ceiling. If they did, the Federal Reserve would not accept it.
That’s the bottom line of the statement that Anthony Coley, a spokesman for the Treasury Department, gave me today. “Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit,”? he said.
For more, see: http://www.washingtonpost.com/blogs/won ... t-ceiling/
Trillion Dollar Coin and the Bataan Death MarchTo throw away the high ground in a fight; to climb in the water to fight the shark is just irrational when you can stay in a boat and throw sticks of dynamite. It reminded me of General MacArthur dooming American troops to being starved out of Bataan by the Japanese Army by him neglecting to secure his food depots.
“One depot alone, at Cabanatuan on the central Luzon plain, held fifty million bushels of rice—enough to feed U.S. and Filipino troops for over four years.”?
American Caesar: Douglas MacArthur 1880 – 1964
However, its also possible that the New York Fed has a Manhattan Project or two up their sleeve. Time will tell.
Ben Bernanke and the Trillion Dollar Gift
Don’t take consol in your fears
UPDATE: Tsy to blaming the Fed for not issuing the TDC is weak, like blaming your dog for you not going out for a walk this evening. The Federal Reserve Act’s dispute resolution procedure could have been designed by a Saudi marriage counselor.
“Wherever any power vested by this chapter in the Board of Governors of the Federal Reserve System or the Federal reserve agent appears to conflict with the powers of the Secretary of the Treasury, such powers shall be exercised subject to the supervision and control of the Secretary.”?
http://www.law.cornell.edu/uscode/text/12/246
Moda--moda0306 wrote: HB Reader,
Our government issues currency. That's currently done via the federal reserve, other than coinage. The question as to how our government issues money is worth debating, but currently with a government that is a fiat currency issuer.
Minting the coin wouldn't decide how money is spent, but simply allow the government to pay the bills it's already incurred. In fact, not minting it may result of a loss of congressional control on purse strings. It leaves us with a huge problem of where and how to pay bills that have been approved by congress.
It's no more gimmicky than having such a clumbsy debt ceiling process in a fiat economy. If there was some kind of constraint on government actions that used inflation as a measure instead of debt I might be for it, but the coin is a gimmicky political solution to a gimmicky political problem of having to pay bills based on current law.
Of course, the easy and correct thing to do would be to simply raise the damn debt ceiling and quit acting like children about this.
