A primer on economics, the defecit, and the national debt
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24-03-2013, 10:13 PM
A primer on economics, the defecit, and the national debt
My field is engineering and not economics so I can't say I speak on this matter with any expertise.

But I've always wondered this on the subject of our economy, the federal reserve and the defecit.

How can we continue to spend money we just don't have?

We are currently 17 trillion in debt ($17,000,000,000,000.00). We add another $1.2 trillion in debt every year. And there's no sign of this ending any time soon. At the current rate of this, the government is forecast to be bankrupt by 2037.

You often here, particularly from angry Tea Baggers that we need to cut government spending. But when pushed as to what programs need to be cut or reduced the only consistent comment is that we need to reduce the Congressional salaries.

To be fair, each Congressman and Senator earns about $175,000 USD in government salary. That's a hefty chunk of change and the total taxpayer bill to pay these people works out to be $96.7 million USD. Doing the math, total congress pay is about 1/10,000 of our total deficit. If we merely docked their salaries by, say, 20%, that only knocks down 1/50,000 of the total deficit! Clearly this is unacceptable.

We are a fiat currency based economy so the value of the dollar is set by the Federal Reserve. Bearing this in mind and seeing that nobody (sane) gives a shit if we spend in the red since we can just print dollars, why not simple conjur the money to cover the defecit out of thin air. For that matter, why even tax the public to pay for the government. Inflation should not be a problem as we can set the value of the dollar to suit our fancy.

Is this possible or is our current economic policy what I think it is and that being a house of cards fucked up flying kite about to hit powerlines and electrocute the shit out of the public who relies on government services? Am I the only sane person here?

"IN THRUST WE TRUST"

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24-03-2013, 10:38 PM
RE: A primer on economics, the defecit, and the national debt
Ok first off the Our government is going broke by "insert year here" are scare tactics and are based on worst case scenerios. Deficit to GDP is high because we are still in a reccesion. So to all your tea party friends that want to cut foriegn aid and congressmans paychecks well thats just willful ignorance of what the federal budget actualy is.
Now long term yes we need to work on our spending and revenue (taxes are at a 50 year low) but short term we actualy could use more (not less) government spending. One solution is the keynsian model of government investment in infrastructure and construction. This solves several problems at once, 1st it adds cash to local economies that tend to cause other local businesses to hire more workers and you end up with a better return on investment than you do with tax cuts. 2ndly this actualy helps the deficit as it grows the tax base (a larger tax base solves a lot of problems) and lastly it fixes a major undiscussed problem in this country. Our bridges and roads are failing, or will be in 5 years time.
Now once we solve the short term problems we can move on to bigger things. As I tend to bring up a lot (mainly cause it is one of the roots of evil in our society) the failed war on drugs needs to end. That alone would remove (conservative estimates federal state and local) 500 Billion - 1 trillion dollars of public spending. Legalise and tax and what used to be a major drain on our coffers becomes a major source of income.
Now on to the hard less fun and way less popular segment. Cutting the big 3 Medicare, Medicade and the Millitary. Thos 3 areas are roughly 85% of the federal budget no discussion that doesnt include all 3 is viable or realistic. Of the 3 the Millitary would be the easiest to cut without being horribly painful. We overspend the rest of the world by an insane margin. Our Military budget last year was bigger than the next 19 countries combined. We could easily close half of all military bases worldwide with no decrease in our operation effectivness. Now before anyone gets on me for not being for veterans most of my friends have served I live in a military town and if you notice I am not suggesting reductions in vetrans benifits.
Now onto Medicare. The AFA (or Obamacare) helps a little bit but Imo we really need to go to a single payer option like every other western society. As it stands we are robbing peter to pay paul and it will only get worse as the baby boomers hit retirement age. This is not my area of expertise but from everything I've ever heard or read about the problem this one needs to be dealt with soon.
Medicade is probably the hardest of the 3M's to deal with because it is a huge and nebulose collection of universally popular programs. It's very difficult to propse cutting off funding for poor kids medical bills. Mainly these programs need to be rearanged and streamlined.

(31-07-2014 04:37 PM)Luminon Wrote:  America is full of guns, but they're useless, because nobody has the courage to shoot an IRS agent in self-defense

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24-03-2013, 10:45 PM
RE: A primer on economics, the defecit, and the national debt
The Federal Reserve doesn't set the value of the dollar, it sets the interest rate. The value of the dollar is set on the global market.

Ultimately, the US cannot continue on this path for much longer. I don't profess to know what exactly will happen and no one really can because this is the first time a global standard currency will have deflated to this point. I do know that whatever happens, those who run the show and their friends will not lose out and this is evidenced in the financial industry bail outs.

Also, if you count unfunded liabilities, the US government is on the hook for over 150 trillion and, once socialized health care really kicks in... that number will increase exponentially.

I agree wholeheartedly with your comments about cutting congressional salaries. That's a drop in the bucket compared to, say, billions still going out due to past wars (Civil War included ). That's not to say it shouldn't be done but it is patently absurd that the right only wants to cut tiny bits here and there and the left only wants to cut war spending.... and even then, not all war spending.

Oh and, you can't print your way out of debt. The state doesn't print money that isn't technically backed by something. So, every time the US rulers want more money to blow, they have to sell bonds or borrow. In a nutshell, printing money is to a nation state what using a credit card is to your family budget. It may pay off an immediate debt but the long term consequences are worse.

The beginning of wisdom is to call things by their right names. - Chinese Proverb
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24-03-2013, 11:01 PM
RE: A primer on economics, the defecit, and the national debt
(24-03-2013 10:13 PM)Carlo_The_Bugsmasher_Driver Wrote:  We are a fiat currency based economy so the value of the dollar is set by the Federal Reserve. Bearing this in mind and seeing that nobody (sane) gives a shit if we spend in the red since we can just print dollars, why not simple conjur the money to cover the defecit out of thin air....
I've heard this discussed and referred to as "taking the Red Pill" - the point where we just cover our debt with a key stroke that creates debt-free money and and see "Just how far down that Rabbit Hole goes". It can certainly be done, and done with just a few keystrokes: we don't even need to print the dollars.

We'll do it one day I am sure. Then...we'll see if other countries let us get away with it for long.
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24-03-2013, 11:01 PM
RE: A primer on economics, the defecit, and the national debt
(24-03-2013 10:38 PM)Revenant77x Wrote:  One solution is the keynsian model of government investment in
infrastructure and construction. This solves several problems at once,
1st it adds cash to local economies that tend to cause other local
businesses to hire more workers and you end up with a better return on
investment than you do with tax cuts.
That's a mathematical impossibility. If the state spends a dollar of borrowed money and then collects a dime in tax from that dollar, it has lost .90 cents. And if you add interest on that borrowed dollar, the returned amount is further reduced. And if you add the cost of administration for the project the dollar was spent on, it wasn't even a whole dollar that actually made it to the economy. But hey, that's how Keynesian math works.... losing ten+ cents on the dollar is a "return on investment".

Add to that the opportunity costs and the inflation caused by increasing the supply of money and you have exactly what the US government has done to this economy following Keynes' advise.

The beginning of wisdom is to call things by their right names. - Chinese Proverb
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24-03-2013, 11:12 PM
RE: A primer on economics, the defecit, and the national debt
(24-03-2013 10:13 PM)Carlo_The_Bugsmasher_Driver Wrote:  Is this possible or is our current economic policy what I think it is and that being a house of cards fucked up flying kite about to hit powerlines and electrocute the shit out of the public who relies on government services? Am I the only sane person here?
No...you are perfectly sane.

I used to keep up with economics and I - and a lot of other people - saw the collapse of 2008 coming. The ARM reset schedule was published and pretty damned compelling and ya' just knew that the house of cards known as CDOs and their CDS insurance would not survive. I figured 2008 would be the end of the sham because the US would have to conjur Trillions of Dollars out of thin air to cover the catastrophe. So...the Catastrophe came and the Government Conjured 12+ Trillion Dollars out of nowhere and the world accepted the magic trick: they continued to base their currency's value on the dollar.

I was amazed! Financial Armagedden had been averted by some ball-headed geek at the Federal Reserve sitting before a computer and creating money out of nothing!

And...then I figured it out. The world is a very wealthy place. The world will continue to tolerate American Money-Making Shenanigans as long as they can absorb the inflation and no better alternative is available. Some day, that will change. When...I don't know.
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25-03-2013, 03:26 AM
RE: A primer on economics, the defecit, and the national debt
(24-03-2013 11:01 PM)bbeljefe Wrote:  
(24-03-2013 10:38 PM)Revenant77x Wrote:  One solution is the keynsian model of government investment in
infrastructure and construction. This solves several problems at once,
1st it adds cash to local economies that tend to cause other local
businesses to hire more workers and you end up with a better return on
investment than you do with tax cuts.
That's a mathematical impossibility. If the state spends a dollar of borrowed money and then collects a dime in tax from that dollar, it has lost .90 cents. And if you add interest on that borrowed dollar, the returned amount is further reduced. And if you add the cost of administration for the project the dollar was spent on, it wasn't even a whole dollar that actually made it to the economy. But hey, that's how Keynesian math works.... losing ten+ cents on the dollar is a "return on investment".

Add to that the opportunity costs and the inflation caused by increasing the supply of money and you have exactly what the US government has done to this economy following Keynes' advise.
Actualy how Keynesian math works is you borrow when intrest rates are low (like they currently are, near 0%) Invest on a local basis. Now yes direct recuperation will never be 100%, however when you factor in the 3rd and 4th level ripples government spending causes, you can and do make the money back. I would propose the US interstate system as the prime example. It cost several billion dollars in todays money but, by including everything it allowed to happen created the biggest economic boom in history.

(31-07-2014 04:37 PM)Luminon Wrote:  America is full of guns, but they're useless, because nobody has the courage to shoot an IRS agent in self-defense

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25-03-2013, 06:23 AM
RE: A primer on economics, the defecit, and the national debt
If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks…will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered…. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs. – Thomas Jefferson in the debate over the Re-charter of the Bank Bill (1809)

History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and its issuance. -James Madison

I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men. -Woodrow Wilson

“It is well enough that people of the nation do not understand our banking and money system, for if they did, I believe there would be a revolution before tomorrow morning.” Henry Ford, founder of the Ford Motor Company.

“The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it. The process by which banks create money is so simple the mind is repelled. With something so important, a deeper mystery seems only decent.” John Kenneth Galbraith (1908- ), former professor of economics at Harvard, writing in ‘Money: Whence it came, where it went’ (1975).

"I am afraid that the ordinary citizen will not like to be told that banks can and do create money...And they who control the credit of the nation direct the policy of Governments and hold in the hollow of their hands the destiny of the people"
Reginald McKenna, former Chairman of the Board, Midlands Bank of England

For no matter how much I use these symbols, to describe symptoms of my existence.
You are your own emphasis.
So I say nothing.

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25-03-2013, 08:24 AM (This post was last modified: 25-03-2013 08:41 AM by Zat.)
RE: A primer on economics, the defecit, and the national debt
I have a very simple solution:

- Stop using money
- Produce what you need
- Distribute uniformly
- Live happily ever after

No more inflation, deflation, banks, interest rates, currency supply, tax-cuts, subsidies, grants, off-shore accounts, recession, depression, deficit-financing, national debt, leveraged buyouts, credit-rating, hostile takeovers, stocks, bonds, derivatives, toxic assets, investment portfolios, and CEO compensation packages.

Big Grin

(I sort of suspect that my solution is too simple and too sane for most of us.)
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25-03-2013, 10:26 AM
RE: A primer on economics, the defecit, and the national debt
(25-03-2013 03:26 AM)Revenant77x Wrote:  
(24-03-2013 11:01 PM)bbeljefe Wrote:  That's a mathematical impossibility. If the state spends a dollar of borrowed money and then collects a dime in tax from that dollar, it has lost .90 cents. And if you add interest on that borrowed dollar, the returned amount is further reduced. And if you add the cost of administration for the project the dollar was spent on, it wasn't even a whole dollar that actually made it to the economy. But hey, that's how Keynesian math works.... losing ten+ cents on the dollar is a "return on investment".

Add to that the opportunity costs and the inflation caused by increasing the supply of money and you have exactly what the US government has done to this economy following Keynes' advise.
Actualy how Keynesian math works is you borrow when intrest rates are low (like they currently are, near 0%) Invest on a local basis. Now yes direct recuperation will never be 100%, however when you factor in the 3rd and 4th level ripples government spending causes, you can and do make the money back. I would propose the US interstate system as the prime example. It cost several billion dollars in todays money but, by including everything it allowed to happen created the biggest economic boom in history.
Third and fourth level tax ripples, like their namesake, are forever smaller than the last and their aggregate doesn't measure equal to the original dollar spent.

As for the boom you speak of, it was a part of the American credit card binge. Sure, there are some people who profited from it but look at where the country is today. This whole problem with fiat currency started in 1913... not a decade ago and not fifty years ago.

It's easy to look at something like the interstate highway system and the economic boom that caused it to be built and say that this is a good thing. After all, who can argue that the fifties through the late seventies wasn't a god time for a lot of people? Well, any economist who is willing to do a long term analysis can. The interstate highway system didn't create the economic boom, it was a by product of it. The boom was caused by fiat currency manipulation. It "worked" pretty good when the dollar was still worth nearly a dollar but as time wore on and more money was printed, much of it for government project that don't produce value, the value of the dollar dropped and inflation became a problem. In order to control inflation, the Fed lowered interest rates, but that led to malinvestment and that led to recession. So the Fed raised interest rates and the market tried to find equilibrium. And then the government flooded the market with new money again and it all started over.....

Right now, interest rates are as low as they've ever been and it isn't fixing the problem. That's because it never fixed anything before. Rather, it only gave the illusion of fixing things, which is Keynesian magic math. Now the Fed is talking about negative interest rates.... overseas the governments are enacting ex post facto taxes on existing savings and their having to keep banks closed in order to avoid a bank run. Currencies are going into hyperinflation and nation states the world wide are inventing new ways to fine and tax the proletariat in order to stay afloat.

All these things are the result of Maynard Keynes' "Live Off You Credit Cards" modus operandi for nation states. The ruling class loved it, because it gave them a way to promise three dollars in benefits for every dollar they collected in taxation. It gave them the money to reward their friends and the power to punish their enemies. The war vets and their baby boomer children loved it because they were promised more in return that they had to pay in. And for a while, that's what they got and it looked like the country prospered. But it didn't. Like I mentioned before, nothing of value was created by the interstate highway system. The market has no way of quantifying its value and the state has no way to pay for its upkeep. It was bought on credit cards and was given away. Now, it lays in need of repair and there's no more credit card money to spend on it.

The beginning of wisdom is to call things by their right names. - Chinese Proverb
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