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Old 01-08-2013, 03:09 PM   #41
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Interesting post. Just today I head a person on NPR arguing that our problem is the economic collapse not tax reductions or excessive spending. He notes that we did OK (measuring the deficit as a percentage of GDP) until the crash of 2008. Of course, Keynes advocated balanced budgets and surpluses in good times, so that there would be extra $$'s to spend during bad times. I don't believe we have followed that advice.
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Old 01-08-2013, 03:41 PM   #42
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Originally Posted by MichaelB View Post
The debt ceiling debate is not about borrowing money, just paying what we already spent, and I imagine the Chinese, Japanese and everyone else are anxious to get paid.
The revision of the law is required to allow the issuance of more obligations of the US government (debt). Here's the preliminary text (final versions of previous revisions attached.
The money raised by issuing this debt will be used to pay for previous spending (including interest on previous borrowing).
So, it is definitely "about borrowing money" . . . and about paying for what we already spent.
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Old 01-08-2013, 04:07 PM   #43
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The choice to borrow was made when the decision to spend without corresponding revenue was made and passed into law. The obligation was authorized at that moment. The debt ceiling is an after the fact discussion where we ask ourselves if we are actually going to pay the obligation we incurred.

I like Nords' original post and think the car analogy is clear and very good. The car needs a good mechanic and fuel. Continuing with the same analogy, the debt ceiling is like the motor oil. It won't help the car go any faster, but if it is taken away the engine will seize.
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Old 01-08-2013, 04:13 PM   #44
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The buy-now, pay-later, kick-the-can approach is so different from the LBYM, delayed-gratification approach most here practice, it's uncomfortable to even think about.
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Old 01-08-2013, 05:04 PM   #45
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The conflating of issues regarding public (e.g. government) spending and the much bigger national economy serve to confuse rather than illuminate.

Ultimately, due to the way we make decisions here, Congress probably can't constrain government borrowing. That may happen when genuine borrowers (e.g. foreign governments, US corporations and individuals) demand higher interest for the money they lend to the US government. It's not happening yet, but that's not a testimony to our strength but to the even crazier state of things in other places and to "inertia."
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Old 01-08-2013, 05:15 PM   #46
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The conflating of issues regarding public (e.g. government) spending and the much bigger national economy serve to confuse rather than illuminate.

Ultimately, due to the way we make decisions here, Congress probably can't constrain government borrowing. That may happen when genuine borrowers (e.g. foreign governments, US corporations and individuals) demand higher interest for the money they lend to the US government. It's not happening yet, but that's not a testimony to our strength but to the even crazier state of things in other places and to "inertia."
I agree. Confusing it is. Moreso because of the way we make, or don't make, decisions and critical choices. I think we suffer from the curse of wealth and success. It certainly has been an interesting thread so far.
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Old 01-08-2013, 06:30 PM   #47
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I'll be curious what you think of that book. I recently read another by Krugman (well, skimmed it after ~ 1/3 of the way through), and my impression of Krugman was:
I am an award winning economist.
I have certain 'beliefs'.
When I talk economics, I make connections to my 'beliefs', and infer cause/effect.
I expect you to accept my inference of cause/effect w/o any attempt at proof, because I am an award winning economist.
At least that was my take on it, curious what others may think.

-ERD50
I've read several of his NY Times Op-eds. Seems to make some sense to me though he is very political and I think of him as center left. However, he is sticking his neck way out in these uncertain times. I have to give him credit for not mincing words. I think he has drawn a lot of fire from people on the other side of economic issues and these arguments can get personal -- makes for a defensive mindset.

Most of the high achievers in academia, government, entertainment, sports, and other areas are probably people with big egos. I doubt whether I'd feel comfy with them on a 1:1. So I'll just try to focus on Krugman's teachings and tune out the ego parts. Not always easy to do.
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Old 01-08-2013, 09:11 PM   #48
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I like Nords' original post and think the car analogy is clear and very good. The car needs a good mechanic and fuel. Continuing with the same analogy, the debt ceiling is like the motor oil. It won't help the car go any faster, but if it is taken away the engine will seize.
Some cars leak so much oil that they should be taken off the road. Make the owner walk until he can afford a properly operating car. This level of austerity may be tough at first, but in the long run, it's better for everyone.
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Old 01-08-2013, 09:55 PM   #49
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Both internal combustion engines and economies are self-sustaining cycles. Keynes certainly was aware that automobile engines didn't start themselves, they needed somone/something to run them through a couple cycles before they would "catch". He probably hand-cranked some himself. Furthermore, it's not enough to get them to turn over slowly. If you don't turn them vigorously enough, they don't catch.

I wonder if that mechanical experience influenced his economic theory.
The common phrase in economic journalism "kick start the economy" might suggest that Keynes at least had a motorcycle.

Ha
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Old 01-09-2013, 12:39 AM   #50
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It's not happening yet, but that's not a testimony to our strength but to the even crazier state of things in other places and to "inertia."
You know it's a big scary globe out there when the American $100 bill is the world's preferred reserve currency.
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Old 01-09-2013, 01:05 AM   #51
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I see money as the original gift card. The company (USA) prints a bunch of gift cards. A certain number of these gifts will never be redeemed. Some will go overseas to power dollar based economies, some will be lost, etc.. so there is a profit to the gift card maker for each card that never gets redeemed.

If there are a zillion workers added to the job market each year, the company could print enough gift cards so that each worker has enough money available so that they can each get a fair income for their labor.

It is a great system until a bunch of curmudgeons clustered around a FIRE website start hiding money in jars buried in their yards. Now the supply of money diminishes, prices shoot up and curmudgeons cash in on deflated money. Everyone starts hoarding money. The gift card company says "This isn't working out." "How about if I put out enough gift card papers that it starts inflating slightly. Everyone gets a raise, there is enough money to go around, and those curmudgeons that hoard money will lose value each year giving them incentives to invest money".

Use it or lose it...
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Old 01-09-2013, 01:27 AM   #52
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I see money as the original gift card. The company (USA) prints a bunch of gift cards. A certain number of these gifts will never be redeemed. Some will go overseas to power dollar based economies, some will be lost, etc.. so there is a profit to the gift card maker for each card that never gets redeemed.

If there are a zillion workers added to the job market each year, the company could print enough gift cards so that each worker has enough money available so that they can each get a fair income for their labor.

It is a great system until a bunch of curmudgeons clustered around a FIRE website start hiding money in jars buried in their yards. Now the supply of money diminishes, prices shoot up and curmudgeons cash in on deflated money. Everyone starts hoarding money. The gift card company says "This isn't working out." "How about if I put out enough gift card papers that it starts inflating slightly. Everyone gets a raise, there is enough money to go around, and those curmudgeons that hoard money will lose value each year giving them incentives to invest money".

Use it or lose it...
I am using it. I am using it. To the tune of 4% a year. I am doing my share.

Seriously, your analogy applies even better to the Japanese. Their government debt is high, but I have read that they are OK because most of the public debt is held by Japanese themselves. And so far, their citizens are not redeeming their gift cards for goods and services. And it may be a good thing they don't, because if they would, there might not be enough workers to provide those goods and services that they demand.

So, lots of gift cards floating out there, and what will ever happen to them? Seems to me the ones who redeem their cards at least get something in return, compared to the hoarders who get nothing.

Should I cash more in, meaning spending more now and redeem my gift cards and not wait until I have to fight with the crowd when they wake up and flock to the store and empty its shelf (meaning high inflation)?

Economics is a funny field. I never really like it, nor can be sure what is right or wrong. What a dismal science!
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Old 01-09-2013, 12:29 PM   #53
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Four years ago, I didn't think much of Krugman. I, like many people, thought that the Fed printing massive amounts of money would trigger lots of inflation. The thing is, it didn't.

Krugman is the one who has spent the last four years explaining why it didn't. He's gotten the last four years right, while most of the people arguing with him have been dead wrong.

That alone should make it worth listening to him.

I would start by recommending his blog. He has links on the right side of it that highlight some of the more important things he's discussed. In particular, his explanation of what a "liquidity trap" is is must reading.

Note that he is highly partisan. People from the other side of the political divide will find it unpleasant to read stuff by him. I recommend that they do so anyway, as he is explaining something that their models of the way the world works have gotten dead wrong for the last four years.

If you're looking for an explanation of why inflation is low and unemployment is high even though interest rates are zero and we're printing money like crazy, I've yet to hear a better explanation than Krugman's.

Quote:
Originally Posted by ERD50 View Post
I'll be curious what you think of that book. I recently read another by Krugman (well, skimmed it after ~ 1/3 of the way through), and my impression of Krugman was:
I am an award winning economist.
I have certain 'beliefs'.
When I talk economics, I make connections to my 'beliefs', and infer cause/effect.
I expect you to accept my inference of cause/effect w/o any attempt at proof, because I am an award winning economist.
At least that was my take on it, curious what others may think.

-ERD50
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Old 01-09-2013, 02:02 PM   #54
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Four years ago, I didn't think much of Krugman. I, like many people, thought that the Fed printing massive amounts of money would trigger lots of inflation. The thing is, it didn't.

Krugman is the one who has spent the last four years explaining why it didn't. He's gotten the last four years right, while most of the people arguing with him have been dead wrong.
Four years is not very much time. If four years is enough time for Fed printing to cause high inflation, than four years should be enough time for Fed printing to create a robust economy. It's not like the economy is "humming along." So far, neither Krugman nor his opponents have been right or wrong.

Also, while a few people argue specifically for high inflation, most argue that excessive Fed printing can cause structural imbalances that create other undesired effects (e.g., Fed printing can ultimately cause deflation; some argue that loose Fed policy significantly contributed to the economic problems of 2008/2009).

Obviously, I cannot argue monetary policy with Krugman or even with many of those who disagree with him. They all know infinitely more about economic theory than I do. However, Krugman often writes about non-economic issues that he knows little about. He doesn't hesitate to use distorted or incorrect facts and/or to ignore fundamental issues about subjects that I know more about than him. Because of this, I do not consider him to be credible. I do not know when he is being academic or when he is simply driving his political agenda. On the other hand, I consider someone like Ben Bernanke to be credible. This doesn't specifically mean I agree with him, but he speaks relatively dispassionately about his domain (and only about his domain).
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Old 01-09-2013, 02:24 PM   #55
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Rogoff and Reinhart came out with an analysis of past systemic crisis: This Time Is Different: Eight Centuries of Financial Folly: Carmen M. Reinhart, Kenneth Rogoff: 9780691152646: Amazon.com: Books

I admit I haven't read their book. This recent article seems to say we are basically on a decent recovery path:
Reinhart, Rogoff New White Paper - Business Insider

The equity markets seem to confirm a decent recovery path. The unemployment picture is the black spot in my opinion. Could be a structural problem that takes some time to work out. Workers need to rethink their future paths and employers need more confidence plus refresh their growth ideas, etc., etc.
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Old 01-09-2013, 06:04 PM   #56
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Krugman has never said that printing money was going to create a robust economy. IMO, he's been pretty solid all along in explaining why it wasn't going to be adequate.

Note that I've never heard of anyone claiming that too much money printing can cause deflation. The narrative that I've heard continually for the last four years is that zero interest rates and printing too much money will cause serious inflation and that the path to prosperity is government belt tightening. It's pretty clear to me that the countries that have tightened their belts the most have faired the worst.

The sources of this narrative have spent the last four years mocking Keynesian economics while being wrong in just about every prediction they have made, while Keynesian economics has done a pretty decent job of predicting the last four years. At some point you have to start considering the possibility that Keynes was onto something.

I agree that Krugman is a very biased source. Frankly, his main value to me has been explaining the rather counter-intuitive nature of a liquidity trap.

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Four years is not very much time. If four years is enough time for Fed printing to cause high inflation, than four years should be enough time for Fed printing to create a robust economy. It's not like the economy is "humming along." So far, neither Krugman nor his opponents have been right or wrong.

Also, while a few people argue specifically for high inflation, most argue that excessive Fed printing can cause structural imbalances that create other undesired effects (e.g., Fed printing can ultimately cause deflation; some argue that loose Fed policy significantly contributed to the economic problems of 2008/2009).

Obviously, I cannot argue monetary policy with Krugman or even with many of those who disagree with him. They all know infinitely more about economic theory than I do. However, Krugman often writes about non-economic issues that he knows little about. He doesn't hesitate to use distorted or incorrect facts and/or to ignore fundamental issues about subjects that I know more about than him. Because of this, I do not consider him to be credible. I do not know when he is being academic or when he is simply driving his political agenda. On the other hand, I consider someone like Ben Bernanke to be credible. This doesn't specifically mean I agree with him, but he speaks relatively dispassionately about his domain (and only about his domain).
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Old 01-09-2013, 06:22 PM   #57
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I have never read any of Krugman's writings, but I tend to agree with what Buffett said a while back about government's pumping money into the economy.

He said that when trying to rescue a victim stuck in quick sand, you would try to yank him out with a rope tied to a pickup, without worrying too much about dislocating his shoulder. That, we could deal with later once the guy's survival is ensured.

But then, if we agree that extra money is helpful, is it spent in a way that can be nullified later? We have to be careful about entitlement programs that once enacted would be very difficult to reverse.

For example, only recently when I stopped working and had my income dropping into the 15% bracket that I discovered all the goodies for people in situation like mine now, such as tax-free cap gains and dividends. Why is it fair for someone who makes 8 hrs/day making $70K to pay more taxes than someone loafing on $70K of passive income? The law benefits me, but is it good for the society at large, for my children's generation?
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Old 01-09-2013, 06:38 PM   #58
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snip-

For example, only recently when I stopped working and had my income dropping into the 15% bracket that I discovered all the goodies for people in situation like mine now, such as tax-free cap gains and dividends. Why is it fair for someone who makes 8 hrs/day making $70K to pay more taxes than someone loafing on $70K of passive income? The law benefits me, but is it good for the society at large, for my children's generation?
Careful now. The usual story behind the low tax rates is that we rentiers are the engine of civilization and job creation. Certainly my wife would set you straight on my involvement with the first part and frankly I don't know that I'm doing much for the second part. But the story has a nice ring to it.
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Old 01-09-2013, 07:07 PM   #59
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Careful now...
I am careful. I am careful.

Careful enough to test drive my tax program for 2012 to see how much cap gains I could harvest without going over the 0% tax bracket. They do not make it easy with all those personal exemptions and stuff, you know?

However, I forgot one thing. As I should not be paying a lot of taxes this year, I should have forgotten about deferred savings, and funded our Roth instead. I only thought about it after the New Year Day. Darn, I missed out!
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Old 01-09-2013, 07:16 PM   #60
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I am careful. I am careful.

Careful enough to test drive my tax program for 2012 to see how much cap gains I could harvest without going over the 0% tax bracket. They do not make it easy with all those personal exemptions and stuff, you know?

However, I forgot one thing. As I should not be paying a lot of taxes this year, I should have forgotten about deferred savings, and funded our Roth instead. I only thought about it after the New Year Day. Darn, I missed out!
I hear your pain. Frankly the only (stupid I know) reason that I haven't followed the Roth bandwagon is that knowing what a cheap bastard I am, whatever I put into a ROTH WOULD NEVER UNDER ANY CIRCUMSTANCES EVER EVER COME OUT. I've been retired for 10 years now and the thought of touching my IRA's never even crosses my mind (I'm 62 now). So I figure come age 70 1/2 I'm gonna have to start spending it whether I like it or not... And that's a good thing.
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