- A bond is no different to a term savings account. When you move your money from a day account to one year fixed, you net financial position is unchanged. Buying a bond for cash is no different. So, again we have established deficit spending adds to the net financial assets to the private sector.
Not quite, a bond can be bought and sold. And it's price will change with the interest rates.
Traditionally government raised revenue via taxation. Then came government debt, the Roman senate was in debt most of the time. From Augustus to Nero the return on government debt 4% pa. After Nero to the early 3rd rates rose gradual to 12% pa and staid there.
Finally the printing of money. The Roman denarius was debased of its silver content, and finally there was no actual coin. Circulating coins came to be valued at so many denarius which had become a pure fiat concept.
Yes - so the spending fund the deficit. Correct. That is a very MMT style statement. Well done.
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Its not free money
No - its fiat. Little bits of green paper with dead white guys printed on it. Hardly a scarce resource! But its value is based on the real resources it can mobilise. In that context, real resources are the issue - not digits in a computer.
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The debts racked up by the US in the 1940 were eroded by growth which enabled debt to be paid down.
Have a look at the chart again - not many surpluses there. In fact, every time the deficit shrunk (or moved to surplus) a recession followed. Elastic thinks American had $16T of loose change behind the couch in the 1930's. I disagree. I think it is unsustainable to collect more tickets than you issue. I think logic is on my side.
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Run deficits- pay interest on the debt.
Bigger the deficit, bigger the debt, the more current expenditure has to be spent servicing that debt.
Interest payments are just as fiat as any other form of spending. And as you say earlier, the interest payment creates the money.
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The bond vigilantes might be over blown but they are real.
LOL - so is the easter bunny!
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Greece, Ireland and Portugal would all have defaulted in 2010 were it not for the bailout they received from the Troika.
They are bailed out by the currency issuer - the ECB.
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Similarly, if the bond markets believed that the ECB could no longer make good on its debts it would hike the interest rate too.
The bond investors know they can not beat a currency issuer. When dragi said he would do whoever he could, the crisis was finished. Bond investors can not beat a monopolist.
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Hard to see, but arguing that deficits don't matter at all is nonsense.
Deficits do matter. You have not been paying attention
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And if deficits matter, so too does balancing the budget.
No. It's not that binary. And my chart proves your claim false. Japan proves it false. Europe proves it false. The UK proves its false. Why do so many people simply ignore the data?
Count du Monet
17 Sep 2014, 06:38 PM
Not quite, a bond can be bought and sold. And it's price will change with the interest rates.
The only difference is opportunity cost/gain (term deposit) versus realised cost/gain (bond). The economics are no different.
Yes - so the spending fund the deficit. Correct. That is a very MMT style statement. Well done.
No - its fiat. Little bits of green paper with dead white guys printed on it. Hardly a scarce resource! But its value is based on the real resources it can mobilise. In that context, real resources are the issue - not digits in a computer.
Have a look at the chart again - not many surpluses there. In fact, every time the deficit shrunk (or moved to surplus) a recession followed. Elastic thinks American had $16T of loose change behind the couch in the 1930's. I disagree. I think it is unsustainable to collect more tickets than you issue. I think logic is on my side.
Interest payments are just as fiat as any other form of spending. And as you say earlier, the interest payment creates the money.
LOL - so is the easter bunny!
They are bailed out by the currency issuer - the ECB.
The bond investors know they can not beat a currency issuer. When dragi said he would do whoever he could, the crisis was finished. Bond investors can not beat a monopolist.
Deficits do matter. You have not been paying attention
No. It's not that binary. And my chart proves your claim false. Japan proves it false. Europe proves it false. The UK proves its false. Why do so many people simply ignore the data? The only difference is opportunity cost/gain (term deposit) versus realised cost/gain (bond). The economics are no different.
If I set up a personal operation selling bonds whereby I could guarantee interest repayments on the bonds then I would also have an endless supply of customers given the right yields. I could sell those bonds to anyone who wanted to invest the money. They would end up with an elastic bond, I would spend their money back into the system and it would end up back in a bank somewhere. No new money created, one new holder of an elastic bond.
In fact I could keep doing this endlessly until I had sold 16T of elastic bonds and spent it all provided I could keep paying the interest on my bonds. It would be quite stimulatory to the financial system because instead of the money sitting in the bank or super fund, it is immediately spent by me.
Anyone can sell bonds. They all result in extra "financial assets" in the system but they do not add to the money supply.
Yes - so the spending fund the deficit. Correct. That is a very MMT style statement. Well done.
No - its fiat. Little bits of green paper with dead white guys printed on it. Hardly a scarce resource! But its value is based on the real resources it can mobilise. In that context, real resources are the issue - not digits in a computer.
Have a look at the chart again - not many surpluses there. In fact, every time the deficit shrunk (or moved to surplus) a recession followed. Elastic thinks American had $16T of loose change behind the couch in the 1930's. I disagree. I think it is unsustainable to collect more tickets than you issue. I think logic is on my side.
Interest payments are just as fiat as any other form of spending. And as you say earlier, the interest payment creates the money.
LOL - so is the easter bunny!
They are bailed out by the currency issuer - the ECB.
The bond investors know they can not beat a currency issuer. When dragi said he would do whoever he could, the crisis was finished. Bond investors can not beat a monopolist.
Deficits do matter. You have not been paying attention
No. It's not that binary. And my chart proves your claim false. Japan proves it false. Europe proves it false. The UK proves its false. Why do so many people simply ignore the data? The only difference is opportunity cost/gain (term deposit) versus realised cost/gain (bond). The economics are no different.
So as long as you are a country issuing your own currency you are sweet?
Nonsense.
The bond markets would have stopped lending to Greece and Ireland such was the scale of their deficits.
We know this because of what happened to their bond spreads after the GFC.
They would have defaulted. End of story. In fact, they pretty much did.
You can take on Krugman now if you wish.
He explains how the rest of MMT's core thesis is wrong. I posted it for you.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?
The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly. Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
Running surpluses is unsustainable- how can a ticket collector collect more tickets than they issue? Conversely running deficits are far more sustainable. Want proof?
Based on the above chart, are you suggesting in 1930 the private sector had $16T in cash sitting behind the sofa ready to fund the US government for the next 80 years?
According to your rather insane take on government spending, if we run constant deficits, we will all prosper?
You post a chart and draw the conclusion that deficit spending creates economic growth and surpluses cause recessions.
But consider the following. If you borrow $1 billion to build a port and rail network that helps suppliers get their goods to foreign markets, then you will see economic growth. That growth will be multiplied going forward as you have borrowed to fund a permanent asset that has an ongoing economic benefit.
But if you borrow to pay for social welfare programs and to service the interest on your accumulated debt all you have done is increase your debt load with no ongoing multiplier effect.
That is where Britain, the USA, EU and many others are now.
Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be rising.
How do you think it's all been created? magic'd into existence that's how...
Yes , exactly, and exactly the reason why the whole western world is now screwed and the GFC still going strong six years on with rates at zero for six years too.
One day , some of you clowns might get it, until then, I guess we have to put with the bullshit.
According to your rather insane take on government spending, if we run constant deficits, we will all prosper?
You post a chart and draw the conclusion that deficit spending creates economic growth and surpluses cause recessions.
But consider the following. If you borrow $1 billion to build a port and rail network that helps suppliers get their goods to foreign markets, then you will see economic growth. That growth will be multiplied going forward as you have borrowed to fund a permanent asset that has an ongoing economic benefit.
But if you borrow to pay for social welfare programs and to service the interest on your accumulated debt all you have done is increase your debt load with no ongoing multiplier effect.
That is where Britain, the USA, EU and many others are now.
Yes a currency issuer can have deficits forever, but clearly they need to be a productive country to support that deficit.
But a non-currency issuer like Greece will experience capital flight as investors take their Euros to a safer haven.
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