Gyroscopic Investing

I can't remember, but do we need a deficit for MMR to work or just any Federal borrowing in general?

Robust economic growth has helped push the U.S. budget deficit down to the lowest level since 2008, marking the sharpest turnaround in the government’s fiscal position in at least 46 years.

The shortfall of $483.4 billion in the 12 months ended Sept. 30 was 2.8 percent of the nation’s gross domestic product of $17.2 trillion over the same period, according to data compiled by Bloomberg using Commerce Department figures. The figure peaked at 10.1 percent of GDP in December 2009

http://www.bloomberg.com/news/2014-11-0 ... -turn.html

Here's a good counterpoint:

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I think in general you want to reduce deficit in good times and deficit spend in bad times. 

Where are these revenues coming from?  Is it partially related to the U.S. Oil industry, which revenues could disappear next year?

dragoncar wrote: I think in general you want to reduce deficit in good times and deficit spend in bad times. 

Where are these revenues coming from?  Is it partially related to the U.S. Oil industry, which revenues could disappear next year?

Revenues are coming, my guess, from businesses being more profitable, more people working, and more people working higher-paying jobs.  The effective marginal tax rate for low/modest income business-owners/individuals is actuall quite high when you include Payroll taxes, SE taxes, and start removing credits.

Also, lots of the bonus depreciation rules for larger businesses went away.  And the payroll tax reduction did as well.

TennPaGa wrote: MR is simply a description of how the monetary system works.  Whether the government is running a deficit or surplus is immaterial to MR.

That didn't answer my question.  Is deficit spending necessary to create money or is any borrowing in general sufficient?

moda0306 wrote: Revenues are coming, my guess, from businesses being more profitable, more people working, and more people working higher-paying jobs.  The effective marginal tax rate for low/modest income business-owners/individuals is actuall quite high when you include Payroll taxes, SE taxes, and start removing credits.

People aren't working more higher-paying jobs.  The unemployment rate is decreasing because more people have lower-paying, part-time jobs if they don't outright give up and stop being counted.  I think we've been seeing the gap between highly skilled and low skilled workers widen.

MachineGhost wrote:

TennPaGa wrote: MR is simply a description of how the monetary system works.  Whether the government is running a deficit or surplus is immaterial to MR.

That didn't answer my question.  Is deficit spending necessary to create money or is any borrowing in general sufficient?

Under our system, deficit spending is borrowing, no?

Pointedstick wrote:

MachineGhost wrote:

TennPaGa wrote: MR is simply a description of how the monetary system works.  Whether the government is running a deficit or surplus is immaterial to MR.

That didn't answer my question.  Is deficit spending necessary to create money or is any borrowing in general sufficient?

Under our system, deficit spending is borrowing, no?

Short term it appears to be heavily paper money printing.  Longer term I would say it is borrowing from the well-being of future generations by virtue of dollar devaluation.  Right?

... Mountaineer

Pointedstick wrote: Under our system, deficit spending is borrowing, no?

I'm pretty sure theres no rule that says the government cannot borrow if current year revenues exceed previously authorized spending.  There may be no point in doing so from a balanced budget perspective, but from a currency issuer perspective, I think it is prudent.

TennPaGa wrote: Federal government deficit spending creates money.  Bank loans create money.  Banks create far more money than the federal government does.

Yes, but so does borrowing in absence of a deficit, no?  So they are equivalent and a deficit is not technically necessary to create money.  Which is what I was asking.

That's true, but let's face it, we're not going to have a surplus until we stop being the world's reserve currency. We pretty much have to run a deficit all the time.

Mountaineer wrote: Short term it appears to be heavily paper money printing.  Longer term I would say it is borrowing from the well-being of future generations by virtue of dollar devaluation.  Right?

No, that would only be if the the "money printing" was unproductive.  The excess portion that exceeds productivity gains would be devaluatory.  But inflation itself is a future response to continous devaluation in the present.

One thing that needs to be better elucidated is that government spending money into existence is not the same thing as "printing money" that people wrongly atrribute to the Federal Reserve.  The Fed just twiddles the monetary base which is proprietary inhouse currency for its member banks.  It doesn't circulate out on Main Street and is not inflationay in and of itself.

Pointedstick wrote: That's true, but let's face it, we're not going to have a surplus until we stop being the world's reserve currency. We pretty much have to run a deficit all the time.

That didn't stop a surplus from happening under Clinton.  Suppose a Balanced Budget Amendemnt got passed, then what?

I'm skeptical Democrats believe in MMR anymore than Republicans, but we know the non-RINOs are hell bent on austierity.

MachineGhost wrote:

Pointedstick wrote: That's true, but let's face it, we're not going to have a surplus until we stop being the world's reserve currency. We pretty much have to run a deficit all the time.

That didn't stop a surplus from happening under Clinton.  Suppose a Balanced Budget Amendemnt got passed, then what?

I'm skeptical Democrats believe in MMR anymore than Republicans, but we know the non-RINOs are hell bent on austierity.

I seem to remember someone here posting that the Clinton "surplus" was all smoke and mirrors from accounting gimmicks not taking into account something big. Anyone remember what that was?

MachineGhost wrote:

moda0306 wrote: Revenues are coming, my guess, from businesses being more profitable, more people working, and more people working higher-paying jobs.  The effective marginal tax rate for low/modest income business-owners/individuals is actuall quite high when you include Payroll taxes, SE taxes, and start removing credits.

People aren't working more higher-paying jobs.  The unemployment rate is decreasing because more people have lower-paying, part-time jobs if they don't outright give up and stop being counted.  I think we've been seeing the gap between highly skilled and low skilled workers widen.

This is a loaded question. It depends on what economic school you are from. I am personally more in this camp as it seems to have been the most accurate in terms of accurate predictions over the past seven years to me.  I'm certainly no expert though.

http://papers.ssrn.com/sol3/papers.cfm? ... id=1905625

Kbg wrote: This is a loaded question. It depends on what economic school you are from. I am personally more in this camp as it seems to have been the most accurate in terms of accurate predictions over the past seven years to me.  I'm certainly no expert though.

Really, that's an ideological question?  I thought it was just statistics and lies.  Not counting people that drop off the employment rolls just makes whatever administration in power look good.  I may be wrong about the reshoring though:

https://finance.yahoo.com/news/-made-in ... 21154.html

Just goes to shore you can't believe nothing you read; it's all groupthink, biased contrarianism or simply from a too narrow perspective.

Kbg wrote: http://papers.ssrn.com/sol3/papers.cfm? ... id=1905625

Nice, I didn't know he wrote a white paper on it (was it peer reviewed?).  That lends a bit more credibility than blog posts.  Although I don't agree with everything he says in terms of his forecasts.  Like any forecaster, some of his forecasts are just so off the mark.  I think PP denizens are wise to forecast porn now.

It is best to think of this process whereby the government can only spend from its account at the Fed if it has already obtained credits via inside money transactions involving taxes or bond sales.  This procurement of funds allows the government to then redistribute pre-existing inside money back into the banking system completing the flow of funds that starts with the banking system’s creation of inside money (in the form of loans which create deposits) and ending in a private bank account user being credit with the government’s spending.

It's interesting how his perspective differs than that of other MMRers.

But the US Treasury can only settle funds in its reserve account by first procuring funds from the private sector (taxing) in the form of inside money (the US Treasury cannot legally run an overdraft in its Fed account).

Oh really?  That doesn't explain the Federal deficit.

EDIT: Later on, Roche explains that deficit spending is procured by bond sales (implying that the government only spends up to what is in their Fed account).  So he has a different take that the government merely redistributes all private money and Congressional spending isn't the original source of all money creation.  I like his explanation better than the others as it is more accounting logical.  Actually, I guess Congress does literally create public money so long as the Fed and/or Primary Dealers are required to monetize it into private money (they are).  But to think Congress creates public money and then directly credits your bank account in the form of a SS ACH doesn't make sense as they are two different kinds of money.  They could do that, but that's not how the current system works.  Chicken or egg?

EDIT: Later on, Roche explains that the Federal deficit is a thermostat indicator for the economy.  It should be relatively lower when the economy is running hot and vice versa.  Does the historical data back this up?

Man, this whole system is mind boggling and beautifully whack in only that special way that comes from a lack of an intelligent designer.  What's ironical is MR actually fits more with the facts as I've come to believe over time about the role of government in reality rather than ideology.

Pointedstick wrote: I seem to remember someone here posting that the Clinton "surplus" was all smoke and mirrors from accounting gimmicks not taking into account something big. Anyone remember what that was?

It was Social Security surpluses generated by baby boomers moving through their peak earning years.

I'm hardly qualified to verify the accounting principles involved to certify whether that's the truth, but that's the reason commonly given.

I'm not even going to pretend I understand this stuff and what does the human mind do to highly complex things? It simplifies.

So here is my simplification...money is faith and it works until faith is lost. Not sure when Roche came up with it, but I've found the whole digital money thing fascinating in the exact example he used from pretty much the same time I got my first direct bank deposit from my employer and used my debit card to buy whatever it was I bought the next week.

It really is weird when you think about it. I work, I get some digits. I go to the store and give them some of my digits and they let me take stuff out of the store without calling the cops.

Kbg wrote: ...money is faith and it works until faith is lost.