The Biden Administration

[mahagonny]

Time for some mansplaining.

The congressfolk play a game of 'chicken' because they are in opposition to each other on fiscal policy. Whereas the real game of chicken, like James Dean's character played in Rebel Without A Cause is just a dare, a destructive stupid clashing of egos and domination. But the difference in fiscal policy is at least a little bit legitimate. The fact that money doesn't grow on trees is not some rule that republicans made up to impose on society.

I'm sure you are a hard worker Mamselle. I guess I sound smug because if I lost my adjunct gigs I actually might go work in Home Depot.  My kind of swagger.

[mamselle]

You think I didn't know what the game of chicken was about?

That was the basis of my complaint.

Sheesh!

M. 

[Parasaurolophus]

The fact that money doesn't grow on trees is not some rule that republicans made up to impose on society.

It grows on spreadsheets. They understand that perfectly well when it comes to military spending and tax cuts.

[dismalist]

The fact that money doesn't grow on trees is not some rule that republicans made up to impose on society.

It grows on spreadsheets. They understand that perfectly well when it comes to military spending and tax cuts.

It's recorded on spreadsheets, not made on spreadsheets. Government debt is government debt, no matter how it's financed.

It's good there was increasing government indebtedness all through 2020 as it got people through Covid better. Individuals could not have borrowed enough to get through on their own account. Same for 2021. Question is how much more?

An extra trillion or two between friends is fine with me, by the way. Trick is knowing when to stop! :-)

[Military spending? Obama spent plenty, but Trump started the exit from Afghanistan. Tax cuts? To keep the tax/gdp ratio not above its longer run average.]

[mahagonny]

Right, what 'grows on trees' or is infinite is time, the future. Therefore, thanks to borrowing, so does money...;-)

What a great deal! What will the kids think of it? Gee, I don't know!

[marshwiggle]

The fact that money doesn't grow on trees is not some rule that republicans made up to impose on society.

It grows on spreadsheets. They understand that perfectly well when it comes to military spending and tax cuts.

It's recorded on spreadsheets, not made on spreadsheets. Government debt is government debt, no matter how it's financed.

It's good there was increasing government indebtedness all through 2020 as it got people through Covid better. Individuals could not have borrowed enough to get through on their own account. Same for 2021. Question is how much more?

I agree about covid. This was definitely a time for governments to incur debt.

HOWEVER

In my several decades on the planet, I have never heard a government say "This is the good times! Things re going as well as can be expected, so now we're going to pay down debt!"  (A few governments have actually managed to balance the budget, and pay down a bit of debt, but they usually don't announce it ahead of time because voters will scream to SPEND MORE MONEY!)

As more of the budget gets spent servicing debt, that leaves less for program spending. If governments just print more money, well, ask Zimbabwe how that works......

EVERY government EVER claims that times are tight now, so we have to borrow. Just like consumers who have several credit cards, all maxxed out.

[Parasaurolophus]

"Paying down the debt" leads to recessions thanks to (1) large cuts to social programs, which requires individuals to foot the bill instead, and (2) a contraction in the availability of one of the main investment vehicles out there, viz. treasury bonds. This is exactly what happened in the Clinton era in the US, in Australia more recently, etc.

As I understand it, Zimbabwe's hyperinflation was not caused by the volume of currency; it was caused by (1) the diastrous land reforms (which led to a stunning 73% reduction in food production, which led to food imports--paid for in non-Z dollars!), (2) trade restrictions, and (3) pegging the Z-dollar to the US dollar, thus reducing Zimbabwe's monetary sovereignty. The printing of new money was a doomed response to hyperinflation, not its cause.

None of that applies to the US, Canada, the U.K., etc. The credit card analogy is fundamentally flawed because individual consumers are not issuers of a fiat currency.

[dismalist]

"Paying down the debt" leads to recessions thanks to (1) large cuts to social programs, which requires individuals to foot the bill instead, and (2) a contraction in the availability of one of the main investment vehicles out there, viz. treasury bonds. This is exactly what happened in the Clinton era in the US, in Australia more recently, etc.

As I understand it, Zimbabwe's hyperinflation was not caused by the volume of currency; it was caused by (1) the diastrous land reforms (which led to a stunning 73% reduction in food production, which led to food imports--paid for in non-Z dollars!), (2) trade restrictions, and (3) pegging the Z-dollar to the US dollar, thus reducing Zimbabwe's monetary sovereignty. The printing of new money was a doomed response to hyperinflation, not its cause.

None of that applies to the US, Canada, the U.K., etc. The credit card analogy is fundamentally flawed because individual consumers are not issuers of a fiat currency.

There is an idea from so-called Modern Monetary Theory, better called Magical Monetary Theory, that claims governments' use of real resources can be financed by printing money -- and this is true, so long as people wish to hold the extra money! What is forgotten is that if people don't want to hold the extra money or all the extra money, they can turn in their cash in return for government bonds, held by the monetary authority, which got them by giving currency to the government. So money holders can choose between holding bonds, at some interest rate, or money for its convenience. Currency is government debt. The credit card analogy is exact.

Zimbabwe follows in the footsteps of Austria-Hungary 1918, Weimar 1923, and Hungary 1945-46. This is well understood and appreciated.

'Twould have been good if the government had issued more currency during the 1930's, when there was deflation. At present we have inflation, showing that people do not wish to hold more money, so they trade it in for goods.

The nicest thing I can call Modern Monetary Theory is what Hicks called the General Theory -- depression economics.

[Parasaurolophus]

There is an idea from so-called Modern Monetary Theory, better called Magical Monetary Theory, that claims governments' use of real resources can be financed by printing money -- and this is true, so long as people wish to hold the extra money! What is forgotten is that if people don't want to hold the extra money or all the extra money, they can turn in their cash in return for government bonds, held by the monetary authority, which got them by giving currency to the government. So money holders can choose between holding bonds, at some interest rate, or money for its convenience. Currency is government debt. The credit card analogy is exact.

Pejorative appellations aside, the credit card analogy more or less works for municipal and state (or provincial) governments, because their spending is almost entirely constrained by tax revenue. They cannot issue currency, so they cannot pay off debts in US$ (for example) which exceed their revenues.

As the issuer of a fiat currency, the federal government is not at all in the same position. Whether they're in as good a position as MMT makes out is another matter. But what is undeniable is that they are in a much better position than credit card users--and as I understand it, all economists agree on that much, regardless of what they think of the further inferences drawn by MMT.

Zimbabwe follows in the footsteps of Austria-Hungary 1918, Weimar 1923, and Hungary 1945-46. This is well understood and appreciated.

Indeed. And what's well-understood and appreciated--though not by the lay public--is that all of those cases are cases where the printing of moey was not the cause of runaway inflation. The inflation predated the accelerated printing. The problem is debt owed in foreign currency. (Actually, I'm confident about the first three: I don't know much about Hungary 1945 except that its industrial base was destroyed by the war.)

[dismalist]

There is an idea from so-called Modern Monetary Theory, better called Magical Monetary Theory, that claims governments' use of real resources can be financed by printing money -- and this is true, so long as people wish to hold the extra money! What is forgotten is that if people don't want to hold the extra money or all the extra money, they can turn in their cash in return for government bonds, held by the monetary authority, which got them by giving currency to the government. So money holders can choose between holding bonds, at some interest rate, or money for its convenience. Currency is government debt. The credit card analogy is exact.

Pejorative appellations aside, the credit card analogy more or less works for municipal and state (or provincial) governments, because their spending is almost entirely constrained by tax revenue. They cannot issue currency, so they cannot pay off debts in US$ (for example) which exceed their revenues.

As the issuer of a fiat currency, the federal government is not at all in the same position. Whether they're in as good a position as MMT makes out is another matter. But what is undeniable is that they are in a much better position than credit card users--and as I understand it, all economists agree on that much, regardless of what they think of the further inferences drawn by MMT.

Zimbabwe follows in the footsteps of Austria-Hungary 1918, Weimar 1923, and Hungary 1945-46. This is well understood and appreciated.

Indeed. And what's well-understood and appreciated--though not by the lay public--is that all of those cases are cases where the printing of moey was not the cause of runaway inflation. The inflation predated the accelerated printing.

I can't help you.

[Parasaurolophus]

I dunno. I mean, you could help by articulating the role that the land reforms played in Zimbabwe's hyperinflation crisis, and compare that with a timeline of their increased printing. Or you could do the same for the role reparations played in Austria-Hungary and Weimar Germany.

I'm not denying that they all ended up printing more money, or that eventually there was a horrific feedback loop. I'm pointing out that the problem pre-existed the printing, and was not solved by the printing because the debt was owed in a different currency--and with the pre-existing conditions worsening economic capacity, it entirely undermined the value of the local currency so that it couldn't be exchanged for the stabler foreign currency at a suitable rate. I agree that printing money didn't save them. But it didn't save them because they had the wrong money, and they had external creditors who wanted other money they couldn't print. (In the historical cases, the money might also have been constrained by the gold standard or something [I know Germany suspended it for the war, but after that I don't know]. I don't know. If so, that's another important constraining factor.)

[ciao_yall]

"Paying down the debt" leads to recessions thanks to (1) large cuts to social programs, which requires individuals to foot the bill instead, and (2) a contraction in the availability of one of the main investment vehicles out there, viz. treasury bonds. This is exactly what happened in the Clinton era in the US, in Australia more recently, etc.

As I understand it, Zimbabwe's hyperinflation was not caused by the volume of currency; it was caused by (1) the diastrous land reforms (which led to a stunning 73% reduction in food production, which led to food imports--paid for in non-Z dollars!), (2) trade restrictions, and (3) pegging the Z-dollar to the US dollar, thus reducing Zimbabwe's monetary sovereignty. The printing of new money was a doomed response to hyperinflation, not its cause.

None of that applies to the US, Canada, the U.K., etc. The credit card analogy is fundamentally flawed because individual consumers are not issuers of a fiat currency.

There is an idea from so-called Modern Monetary Theory, better called Magical Monetary Theory, that claims governments' use of real resources can be financed by printing money -- and this is true, so long as people wish to hold the extra money! What is forgotten is that if people don't want to hold the extra money or all the extra money, they can turn in their cash in return for government bonds, held by the monetary authority, which got them by giving currency to the government. So money holders can choose between holding bonds, at some interest rate, or money for its convenience. Currency is government debt. The credit card analogy is exact.

Zimbabwe follows in the footsteps of Austria-Hungary 1918, Weimar 1923, and Hungary 1945-46. This is well understood and appreciated.

'Twould have been good if the government had issued more currency during the 1930's, when there was deflation. At present we have inflation, showing that people do not wish to hold more money, so they trade it in for goods.

The nicest thing I can call Modern Monetary Theory is what Hicks called the General Theory -- depression economics.

No, it's not.

First, a government has to expand the money supply simply to cover an increasing GDP caused by an increasing population and higher value-add of goods and services. What was the money supply in the USA 1900? What was the population? What was in people's houses? How about infrastructure? So, without 'printing money' how would those have been paid for?

The most simple way a government does this is reducing the federal interest rate which means banks can lend to borrowers who use these funds to  invest in growth, then pay it back. The lower the interest rate, the higher the money supply. Theoretically most of those funds are going to improve the economy by increasing production while increasing consumption. As long as there is a balance between investment/production and consumption there won't be inflation.

[dismalist]

Free silver, anyone?

History repeats, first as tragedy, then as farce. :-)

[mamselle]

Free silver, anyone?

History repeats, first as tragedy, then as farce. :-)

You remind me of my parents, terrified by something benign that they didn't understand.

They were putty in Nixin's and Reagan's hands, whose operating principle was, "If you scare 'em, you own 'em.

(Why do you think I asked about Philip's curves upthread?

M.

[dismalist]

Everybody wants something for nothing. Can't have it.

We're in the farce part.