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This is a chart of the Fed Funds rate.
The “stimulus” was a fiscal injection passed by Congress (about $900 bn worth) in order to “jump start” the economy. It did not work because it was mostly “targetted” at keeping public sector union employees at work, rather than sent back to the American people in the form of individual purchasing decisions.
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it sure as hell did work. was it perfect? no. would uunemployment be higher without it? GDP lower? certainly.
its just factual economics, folks. LITERALLY, not a theory, not a “proven fact”, but basic accounting math, US private sector savings in dollars or equivalent IS EQUAL TO US gov’t deficit less US trade deficit. thats a FACT.
Bush didn’t run big enough deficits to outweigh the trade deficit in some years, and clinton actually ran a surplus.
Also a fact: every single time in the history of this nation (including the glorious magical gold standard days) that the US gov’t ran a significant surplus a depression resulted, except the clinton surplus… and its not like this is exactly a good economy.
Every time, every single time, the gov’t has tried to run a surplus the result is a private sector debt boom (sound familiar?) and then when the private sector debt gets excessive, an enormous implosion.
This is the 6th or 7th time. Folks, the government debt, en sum, IS THE MONEY SUPPLY, in dollars, for the world. Apples savings in dollars or gov’t securities + yours + mine + your neighbors net debt + chinas savings etc. IS EQUAL TO that total debt.
Its not debt, its literally the supply of dollars available to the world, or, if you prefer, its literally, to the penny, equal to the net savings in dollars and equivalents of the entire world that isn’t the US government.
We will NEVER eliminate the deficit, the Ryan plan is clearly sourced from people that don’t understand economics. On our way to eliminating the federal debt, we would have such a depression that stimulus would be needed. IT CANNOT HAPPEN.
In the glorious gold standard days if we found elevendybillion tons of gold in Nebraska (or some other bullshit midwestern state), would we have panicked and ran screaming into the streets about how having “all this extra money” would cause imminent and immediate hyperinflation?
Would we have had a tea party running around, panicked and freaked, screaming “bury the gold, bury the gold”!
Or, with a suddenly increased money supply, would we have had an economic boom?
Its the supply of dollars, folks, literally, to the penny. Its the net sum of the worlds savings, again literally, and again to the penny.
And we have the most fantastically advantaged system ever conceived. We can literally find eleventybillion tons of gold … by hitting some computer keys.
There is no other way out of this malaise, the government must run huge deficits for some time, we WILL get back to boom times with a substantially higher government deficit. These bad times are literally the result of insufficient creation of currency (causing the SAME THING AS BEFORE, private sector debt boom ending in debt deflation).
But, hey, lets tea party it up. Screw 2 centuries of wild prospterity and the highest standard of living ever imagined. That is all BS. The 7th or 8th time is the charm! Run a massive government surplus, that’ll cause boom times for suresies! This time, those other times were different…
I apologize to all for the sarcasm, but my god. The world nearly seems intent on going back to 1937 via petty bickering, political posturing, and absolute refusal to learn anything from history or anything else.
Its anger and ignorance -vs- reality, period.
The rant was not aimed at Jake as a person, just at the stunning refusal of the world to be rational.
So I’m retired, but guess waht? My oldest son is 12, and he’s not. Tea Party and Ryan get their way, we have a depression, actually we have repeated threatened depressions followed by massive stimulus which turns it around for awhile until the next time people decide to be “austere”. Wait, Japan ALREADY DID THAT. Failed.
We do need to “take our medicine”, but its in the form of enormous creation of currency to end the debt deflation.
And that is exactly how it will ultimately end, one way or another, if we do it soon and now happy times, if we wait 20 years, … japan part 2.
“because we think we can be greece we are becoming the next japan” – warren mosler
Hey, I’m no economist, but I seriously doubt that the only thing you can do with money once you print it is to expand federal bureaucracy and spend on programs which are not profitable but appeal to liberal university and community activist “causes.”
Again, I’m no expert, but you seem to conflate two separate issues – inflation and wasteful/idiotic spending. They are not the same, are they? I personally think the fed would be most aware of whether or not we are in danger of hyperinflation, and I think they run the loot printing press, but the federal govt surely CANNOT be trusted to decide unilaterally where to spend taxpayer money nor can we expect that they will beneficently restrain from enlarging themselves just because it benefits society for them to shrink and get out of the way.
there is little question that the private sector is a more efficient spender…
so the appropriate policy is two pronged
1. shrink government
2. (for now, in deflationary / recessionary times) expand deficit (reduce it in inflationary/expansionary times if possible or if need be, but when running a trade deficit elimination of a government deficit is highly risky, see above commentary)
the private sector is grossly overtaxed. business is grossly overtaxed. but to get around these points, you basically have to get a preponderance of politicians to realize that Cheney was exactly right when he said that in the grand scheme, deficits don’t matter.
Not that they NEVER matter, but just that
1. the gov’t does not need (and in reality DOESN’T) raise cash before it spends, it just spends / just can spend
2. gov’t spending is fundamentally necessary for situations where the greater good is in the best interest of no signle private party (like infrastructure / schools / etc.)
3. the basic purpose of a deficit is to
a) balance the negative / private sector debt promoting aspects of a trade deficit
b) control inflation. a higher deficit is inflationary / expansionary (good in deflationary times like now, bad in inflationary times) a lower deficit is contractionary / deflationary
etc. its not that deficits don’t matter, they could in many cases easily cause inflation… its just that they are never “limited”, the government is never revenue constrained they way you or I are, the solitary consequence of gov’t deficits is inflation.
part of why WW2 worked so well is that the massive gov’t spending went towards R&D, industry, building of capacity.
a downside to recent and, in general, i think, democrat oriented stimulus is that its oriented towards “freebies”, handouts in exchange for votes.
infrastructure, though, is the right thing to do. for so many reasons
Interesting. You may be right.
the US government has failed to create enough currency to support
1. the desire of its citizens for economic growth (so they had to fuel that growth via debt)
2. the desire of the rest of the world to collect and hoarde dollars (like china)
simple as that.
the malaise will not end until we either have a deflationary depression and re-set GDP to a significantly lower level (helps the very few, harms the very many) OR we satisfy that demand for currency.
In all honesty, the only reason for the government to run a surplus would be wild runaway inflation, which we clearly do not have. And in general, it should not be a question of whether we should have a “debt ceiling”, but whether we should allow the debt to be smaller than the trade surplus ever.
Every time we’ve tried that trick, in all of the history of the nation, its resulted in a depression except… knock on wood, this time.
We’re stealing from our grandchildren not by running up excessive government “debt”, but by wasting all the productive resources that are being wasted now, by having such high unemployment, by NOT fixing the $2.2 trillion worth of shovel ready bridge, etc. infrastructure things in the country.
Credit is borne upon credibility. Once the latter is gone, so the former is no more.
It is simply not creditable to run up massive deficits and then hope to paper them away. Eventually there is no room for anything but interest payments. How does your son/grandson afford anything when all private sector funding is absorbed by government payments?
In the case of our currency that asset is our credibility. When that wears thin, what happens?
Look to the late great United Kingdom for your answer.
You make good points about running a surplus (it did lead to a stock market collapse), but if — alternatively– one squanders credit on non-net present value positive projects, one is eating into real asset value.
Eventually, your asset is gone. This is basic finance.
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i saw a chart once that showed that, through losing its world empire, “reserve currency” status (actually reserve currency isn’t an official thing, but the option of everybody) and such, the UK stock market and economy weren’t that far from our own over extremely long periods of time, even as we ascended to those things.
beyond that, if our currency, Jake, has no credibility, please tell me why the Chinese have decided to accumulate a trillion dollars worth and our bonds are trading at 1.9% for a TEN YEAR?
the government is never revenue constrained, jake. never. we will never have trouble meeting our debts, denominated in dollars, and the current understandings of inflation and its causes are clearly inadequate. M1/M2/etc guys have been yapping for h yperinflation for… several years of a deflationary reality, now, no?
and beyond that, if deficits are to lead to hyperinflation, please explain Japan and the yen.
🙂
japans economy is weak, its got epic debt, and a currency on the rise over the last long while, and bonds at 1% for a ten year.
at some point, don’t folks in your camp and advocating the trains of thought that you advocate have to sit up and say “wait a minute, if the facts don’t support us maybe we are wrong?”
believe me, china wouldn’t want US austerity, they would want a booming US economy so as to support their own…
Hold on… you WANT the Japanese result?
Listen, the only reason Japan’s wheel’s aren’t completely off is they have an insane saving ethic, and are willing to finance their own gov’t to an egregious degree.
Once China is big enough to not need our currency anymore… THEY WON’T.
Listening to you is like listening to a mad-person. Do you even contemplate debt service? Does it enter your calculus at all?
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Of course not, what did I type all above? Jap example shows err in the austriN/austerity/hyperinflation crowds logic.
Japans best economist, koo, says their mistake was too little deficit early and hard, and failing to show deflation wouldn’t happen…
Right.. because 200% debt to GDP is just not “pedal to the metal” enough.
If they could only go to 300%, then they’d get those growth rates to 98 bips, instead of 78.
Yeesh!
Real investment, real growth, real consumer choices, real risk taken… get rid of the bloat, get rid of the excess, get back to classical economics.
Have you inspected the Jones-Rothschild paper about the effectiveness of the “stimulus?”
Regarding labor excesses and disintermediation? I may do a blog post on it tomorrow if I’ve the time…
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They’d have lower debt/gel if they would have fired a bazooka at the onset and eliminated deflationary pressures.
Or, maybe, you think greece and europe is working well? Lil spot o that tea here, p’raps?
We have no more need for china to buy our bonds to fund us than we have need for forstys magic hat…
We are no more reliant on china for funding than we are on luxemborg, or I am on joe, whoever he is.
I see. We just need to print paper to retire our own bonds, yes?
Because the perpetual motion machine is a reality in the new monetarist world.
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What is it you wish, jake? Deflationary depression? That’ll help the grand kids? Come on.
I am not advocating excessive inflation, just observing reality.
Anger vs facts, that’s the worlds battle right now. Its all solvable. But anger and misunderstanding impede.
You are advocating a harsher deflationary depression by continuing to push the debt balloon.
The larger the balloon, the greater the deflation… I don’t know how you expect to escape that factor.
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Gotta go to bed. I will read your next treatises tomorrow…
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