Government budgets versus family budgets

[NW-Bound]

Actually, we all have heard from both, as they continue to be the two largest purchasers of our Treasury debt. If risk is reflected in the interest rates as economic theory suggests, they both think the US debt is the safest around...

... until the $1,000,000,000,000 coin idea was proposed.

 

[samclem]

I just saw on the Web a proposal for the US Treasury to mint a one-trillion-dollar coin, then to give it to the Federal Reserve to pay the gummint's debt.

It's not proposed as a serious solution to the underlying problem. It's a proposed wriggle through a loophole to sidestep the debt ceiling debate we are about to have.

The sole virtue of the idea (IMO) is that it will clearly and tangibly demonstrate the cynicism and "easy-way-out" thinking that pervades the present process.

 

[NW-Bound]

And why bother to waste a perfectly good 1-oz of platinum to make this coin? What's wrong with good ole paper?

 

[MichaelB]

... until the $1,000,000,000,000 coin idea was proposed.

Just the opposite. 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.

 

[Texas Proud]

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 haven't read any of his books, but that is the impression that I get when I hear him talk on the Sunday political shows....

 

[Texas Proud]

Actually, we all have heard from both, as they continue to be the two largest purchasers of our Treasury debt. If risk is reflected in the interest rates as economic theory suggests, they both think the US debt is the safest around.

I would have to look it up, but I read an article that said China was not one of the two largest purchasers of our debt... they are #1 holder of debt, but they have been a net 'seller' for the past year or so... IOW, the amount of US debt they hold has been going down...

Japan on the other hand has been buying more and will soon be #1 holder of US debt....

 

[Texas Proud]

And why bother to waste a perfectly good 1-oz of platinum to make this coin? What's wrong with good ole paper?

You have to read the article.... something about the law on printing money... and coining in silver, gold etc.... except platinum....


The problem with this debate, as mentioned by the Mint is they need congress to pass a law on how it will look.... so, it is just a waste of time and effort as they will not pass this if they would not increase the debt ceiling.... just sayin.....

 

[MichaelB]

I would have to look it up, but I read an article that said China was not one of the two largest purchasers of our debt... they are #1 holder of debt, but they have been a net 'seller' for the past year or so... IOW, the amount of US debt they hold has been going down...

Japan on the other hand has been buying more and will soon be #1 holder of US debt....

Could be with China. A lot has to do with how much they are exporting to the US.

 

[NW-Bound]

... I imagine the Chinese, Japanese and everyone else are anxious to get paid.

Yes, but I think they want to be paid with "real money", not the $1-trillion dollar coin. So, we pay internal debt with "funny money", while paying outsiders with "real money"?

But as I thought about my sentence above, I realize that the true question is what "real money" is. When it comes to fiat money, how does one distinguish real money vs. funny money? No black and white and it's all a lot of gray, isn't it?

You have to read the article.... something about the law on printing money... and coining in silver, gold etc.... except platinum....

The problem with this debate, as mentioned by the Mint is they need congress to pass a law on how it will look.... so, it is just a waste of time and effort as they will not pass this if they would not increase the debt ceiling.... just sayin.....

It seems to be a tongue-in-cheek debate, but just that someone brings up the possibility bothered the hell out of me. It's because very strange and unimaginable things happened in past history. Well unimaginable until it really happened of course.

 

[MichaelB]

Yes, but I think they want to be paid with "real money", not the $1-trillion dollar coin. So, we pay internal debt with "funny money", while paying outsiders with "real money"?

But as I thought about my sentence above, I realize that the true question is what "real money" is. When it comes to fiat money, how does one distinguish real money vs. funny money? No black and white and it's all a lot of gray, isn't it?

We're talking about real money. In fact, it has already been spent.

 

[target2019]

I just started Essays on Political Economy by Bastiat, Frédéric on Kindle for Android! http://www.amazon.com/kindleforandroid/

Thought I'd mention this is a free publication.

Birth of Plenty was a major milestone for me. Definitely worth a read.

 

[NW-Bound]

We're talking about real money. In fact, it has already been spent.

Yes. Spent real money, and repay that debt with funny money. Many countries have done that, so this would not be the first time.

 

[MichaelB]

Yes. Spent real money, and repay that debt with funny money. Many countries have done that, so this would not be the first time.

I'm sorry, but I don't get your point about funny money.

 

[NW-Bound]

Well, a piece of paper with a string of 0's after a 1 like what Zimbabwe printed looks like "funny money" to me. It is not backed by any current asset, nor any production capacity that appears feasible in the future by that country.

If wealth could be so easily created...

 

[MichaelB]

Well, a piece of paper with a string of 0's after a 1 like what Zimbabwe printed looks like "funny money" to me. It is not backed by any current asset, nor any production capacity that appears feasible in the future by that country.

If wealth could be so easily created...

Fortunately, our monetary system is not like that, nor is there any indication it will be.

 

[Chuckanut]

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.

 

[samclem]

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.

 

[MichaelB]

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.

 

[GrayHare]

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.

 

[samclem]

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."

 

[MichaelB]

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.

 

[Lsbcal]

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.

 

[Shawn]

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.

 

[haha]

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

 

[Nords]

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.