Fiscal Responsibility is Dead

[seanD]

The link I gave you to the fed page explains the graph you just posted. I'll leave you to sort it out.

No, you don't get off that easily. You explain it to be in detail. Explain to me what they're describing and how it correlates with their balance sheet of US securities. This should be good.

Btw, I'll give you a little hint...

Federal Reserve has indicated that it will return its securities holdings to a more normal level over time, as the economy recovers and the current monetary accommodation is unwound.

We know this statement is BS because they haven't returned their "securities holdings to a more normal level" since 2008, even during the time we were told the economy was supposedly in recovery by Obama and that it was the greatest economy ever by Trump. Someone's lying, or maybe they're all lying.

[Starlight]

Ummm... we're talking about apples and oranges, Star. You are talking about debt-to-GDP ratio. My original post was about the absolute debt. I recognize that you can reduce the debt-to-GDP ratio by running balanced books. The ratio will go down each year. That does not reduce the actual debt, which still remains to be paid.

Indeed, yes, I am talking about debt-to-GDP ratio on the grounds that it is pretty much the only metric that matters. I am suggesting that the original debt never gets paid back and that its ratio to GDP trends downward over time as GDP increases. As the effective value of this historic debt (ignoring any more recently accrued debt) tends lower and lower over time, toward zero, as the GDP continues to increase, it becomes largely irrelevant whether it is ever paid back (and paying it back becomes trivially easy as the value of it becomes so low in present-day dollars).

And if you are going to reduce the debt by 60% in 15 years (which is what you originally said), you have to generate $15T to pay off 60% of a $25T debt.

Let me be absolutely clear: At no point in this thread did I ever intend to suggest literally paying back any of the principal, nevermind $15T of it. If you took that from any of my words we miscommunicated. Instead I suggested that by doing nothing other than paying the interest and running balanced budgets, the debt to GDP ratio effectively diminishes the principal. It becomes easier and easier to pay back the amount at later periods. Inflation means that amount of money diminishes over time relatively speaking, and GDP growth means that people in the future will have more money to pay it back with.

If your grandfather came to you and said "sorry son, I mortgaged your future when I was young and took a huge loan of $100 in 1900. I still owe that $100 and I haven't paid back til this day. That was a crushing debt at the time I took it out, and I am sorry to pass it on to you and destroy your life by doing so," you'd probably laugh, because that amount is almost meaninglessly small today, compared to when it was first taken out. You could repay it easily if you felt like it.

Likewise, after the US Civil War, the US government had wracked up an absolutely crushing debt for the time: $2.6 billion. If they had passed that debt in its entirety down to the US government of today... nobody today would care in the least. That's chump change, and the government finds more money than that when it looks under the sofa, and spends more money than that when it sneezes. It could pay off that entire debt without blinking an eye or it significantly affecting any other budget item. Historic debt becomes insignificant over time.

[Roy]

Historic debt becomes insignificant over time.

Only if it's low-interest or interest-free. That $2.6 billion civil war debt would now be a debt of $20.6 trillion if it had an annual 5% interest rate. Definitely not chump change.

[Starlight]

Only if it's low-interest or interest-free. That $2.6 billion civil war debt would now be a debt of $20.6 trillion if it had an annual 5% interest rate. Definitely not chump change.

I'm assuming that interest is paid yearly as part of the budget, as typically happens in most nations I'm aware of, and hence that it doesn't get added to the outstanding debt.

[carpedm9587]

No, you don't get off that easily. You explain it to be in detail. Explain to me what they're describing and how it correlates with their balance sheet of US securities. This should be good.

Btw, I'll give you a little hint...

We know this statement is BS because they haven't returned their "securities holdings to a more normal level" since 2008, even during the time we were told the economy was supposedly in recovery by Obama and that it was the greatest economy ever by Trump. Someone's lying, or maybe they're all lying.

The holdings dropped from their their peak and were on track to returning to normal until mid August 2019. That was the first time that the fed cut interest rates and returned to quantitative easing in response to indicators of a global recession. The acquisition ramped up significantly, as your graph shows, with Covid-19 and the first stimulus packages. Although there is no commitment I know of on the part of the fed, it is reasonable to assume they will continue to secure those assets through the subsequent stimulus bills.

That is still not "printing money," which is the comment made by Sparko that I responded to.

[carpedm9587]

Indeed, yes, I am talking about debt-to-GDP ratio on the grounds that it is pretty much the only metric that matters. I am suggesting that the original debt never gets paid back and that its ratio to GDP trends downward over time as GDP increases. As the effective value of this historic debt (ignoring any more recently accrued debt) tends lower and lower over time, toward zero, as the GDP continues to increase, it becomes largely irrelevant whether it is ever paid back (and paying it back becomes trivially easy as the value of it becomes so low in present-day dollars).

Let me be absolutely clear: At no point in this thread did I ever intend to suggest literally paying back any of the principal, nevermind $15T of it. If you took that from any of my words we miscommunicated. Instead I suggested that by doing nothing other than paying the interest and running balanced budgets, the debt to GDP ratio effectively diminishes the principal. It becomes easier and easier to pay back the amount at later periods. Inflation means that amount of money diminishes over time relatively speaking, and GDP growth means that people in the future will have more money to pay it back with.

If your grandfather came to you and said "sorry son, I mortgaged your future when I was young and took a huge loan of $100 in 1900. I still owe that $100 and I haven't paid back til this day. That was a crushing debt at the time I took it out, and I am sorry to pass it on to you and destroy your life by doing so," you'd probably laugh, because that amount is almost meaninglessly small today, compared to when it was first taken out. You could repay it easily if you felt like it.

Likewise, after the US Civil War, the US government had wracked up an absolutely crushing debt for the time: $2.6 billion. If they had passed that debt in its entirety down to the US government of today... nobody today would care in the least. That's chump change, and the government finds more money than that when it looks under the sofa, and spends more money than that when it sneezes. It could pay off that entire debt without blinking an eye or it significantly affecting any other budget item. Historic debt becomes insignificant over time.

Then you are responding to something I did not say. I was speaking about the debt in absolute terms, and that it represents borrowing from future generations. That remains true. What appears to differ is that you propose never paying back the debt and simply paying interest on it indefinitely. I find that unacceptable, largely due to the net interest that represents - which remains a continuing burden on future generations. Yes - our budget should be balanced, and included in that should be payment on the principal of that debt until it is erased. It is how I run my home. It was how I ran my business. It is how I believe the government should be run. It's called fiscal responsibility: don't spend what you don't have.

[seanD]

The holdings dropped from their their peak and were on track to returning to normal until mid August 2019. That was the first time that the fed cut interest rates and returned to quantitative easing in response to indicators of a global recession. The acquisition ramped up significantly, as your graph shows, with Covid-19 and the first stimulus packages. Although there is no commitment I know of on the part of the fed, it is reasonable to assume they will continue to secure those assets through the subsequent stimulus bills.

That is still not "printing money," which is the comment made by Sparko that I responded to.

I'm assuming you mean first time they cut interest rates prior to raising them again in 2018, but not the first time they cut interest rates since 2008? You are correct. But the Fed didn't start normalizing their balance sheet until well into 2018. But we were told by Bernanke and Yellen we were in a recovery. In fact, Yellen even stated that she didn't expect to see another recession in her lifetime. So if they lied about offloading their securities when the economy had "recovered," why should I believe anything else they'd say in a PR FAQ? And I proved to you how it was "money printing," as did the NYT. You just don't want to admit you were wrong as sparko said. You dug your pit out of ignorance and now you're just digging deeper because of your arrogance.

[carpedm9587]

I'm assuming you mean first time they cut interest rates prior to raising them again in 2018, but not the first time they cut interest rates since 2008? You are correct. But the Fed didn't start normalizing their balance sheet until well into 2018. But we were told by Bernanke and Yellen we were in a recovery. In fact, Yellen even stated that she didn't expect to see another recession in her lifetime. So if they lied about offloading their securities when the economy had "recovered," why should I believe anything else they'd say in a PR FAQ?

As far as I can tell, there was no "lie." The balance sheet was in the process of being reduced, and then economic indicators led them to add to the portfolio instead. Stuff happens...

And I proved to you how it was "money printing," as did the NYT. You just don't want to admit you were wrong as sparko said. You dug your pit out of ignorance and now you're just digging deeper because of your arrogance.

Neither of the things posted was "proof." Indeed, how the Fed keeps their balances is pretty well indicated both on that website and in other resources.

And I'll leave the last word to you. Further exchanges appear to be pointless.

[Sparko]

When have I ever suggested that I don't believe the government?

Ever since Trump got elected?

[carpedm9587]

Ever since Trump got elected?

Trump is not "the government," Sparko. He's one person in one branch. There are individuals in the government I no longer believe because they have demonstrated a track record of repeatedly lying to U.S. Citizens. Those individuals I now distrust and double check any claim they make before accepting it as true. But that is a relatively small minority of the government. I have repeatedly said that I believe most of the people working within the government to be good people doing the best they can.

The "anti-government" mantra is certainly not coming from me. Perhaps you are projecting? If not - then please link the post where I have indicated that I generally distrust "the government."

Prediction: I'll get yet another accusation of "nailing jello to a tree," or something of that ilk instead of an actual response to the challenge posed.

[Sparko]

Trump is not "the government," Sparko. He's one person in one branch. There are individuals in the government I no longer believe because they have demonstrated a track record of repeatedly lying to U.S. Citizens. Those individuals I now distrust and double check any claim they make before accepting it as true. But that is a relatively small minority of the government. I have repeatedly said that I believe most of the people working within the government to be good people doing the best they can.

The "anti-government" mantra is certainly not coming from me. Perhaps you are projecting? If not - then please link the post where I have indicated that I generally distrust "the government."

Prediction: I'll get yet another accusation of "nailing jello to a tree," or something of that ilk instead of an actual response to the challenge posed.

Dang you are getting good at that prediction thing. Probably because you know that is exactly what you are doing.

[carpedm9587]

Dang you are getting good at that prediction thing. Probably because you know that is exactly what you are doing.

No - I just know who I am talking to...

[seanD]

What can I tell you? Mr. McCulley and the NYT got it wrong. From the Federal Reserve's own website:

Is the Federal Reserve printing money in order to buy Treasury securities?

No. The term "printing money" often refers to a situation in which the central bank is effectively financing the deficit of the federal government on a permanent basis by issuing large amounts of currency. This situation does not exist in the United States. Global demand for Treasury securities has remained strong, and the Treasury has been able to finance large deficits without difficulty. In addition, U.S. currency has expanded at only a moderate pace in recent years, and the Federal Reserve has indicated that it will return its securities holdings to a more normal level over time, as the economy recovers and the current monetary accommodation is unwound.

Although Federal Reserve purchases of Treasury securities do not involve printing money, the increase in the Federal Reserve's holdings of Treasury securities is matched by a corresponding increase in reserve balances held by the banking system. The banking system must hold the quantity of reserve balances that the Federal Reserve creates.

Ordinarily, an increase in reserve balances in the banking system would push down current and expected future levels of short-term interest rates; such an action would serve to boost the economy and variables like bank lending and the money supply. If maintained for too long, a relatively high level of reserve balances and a low level of short-term interest rates could lead to the buildup of inflation pressures. However, with short-term interest rates already near zero, an increase in reserve balances by itself cannot push short-term interest rates much lower. As a result, the current elevated level of reserve balances has not generated an increase in inflation pressures. However, the Federal Reserve monitors inflation and inflation expectations carefully and is prepared to take appropriate actions to adjust policy so as to foster its dual mandate.

Straight from THE horse's mouth...

We're not trying to move markets to a particular level. We just want them to work. We want, you know, people to be buying and selling. And so, you know, it felt like we really needed to act. And we did.

PELLEY: Fair to say you simply flooded the system with money?

POWELL: Yes. We did. That's another way to think about it. We did.

PELLEY: Where does it come from? Do you just print it?

POWELL: We print it digitally. So as a central bank, we have the ability to create money digitally. And we do that by buying Treasury Bills or bonds for other government guaranteed securities. And that actually increases the money supply. We also print actual currency and we distribute that through the Federal Reserve banks.

PELLEY: In terms of size, Mr. Chairman, how does what the Fed is doing right now compare to the unprecedented action it took in 2008?

POWELL: So the things we're doing now are substantially larger. The asset purchases that we're doing are a multiple of the programs that were done during the last crisis. And it's very different this time. In the last crisis, the problems were in the financial system. So they were providing support for the banking system. Here, really, the problems are in what we call the real economy, actual companies that make and sell goods and services. And what's happening to them is that many of them are closed or just not having any revenue.

And we're trying to do what we can to get them through this period where they're perfectly good companies that have had, you know, sound financial condition as recently as February, but now they have no business. And they have fixed costs. So we're trying to help them get through that period.

You were told this over and over, even presented with evidence. Now before you respond, I'd think this through carefully if I were you -- "Do I want to keep digging the ditch I'm in deeper and look like an ever bigger ignorant jackass, or should I just stop digging altogether.

[carpedm9587]

Straight from THE horse's mouth...

You were told this over and over, even presented with evidence. Now before you respond, I'd think this through carefully if I were you -- "Do I want to keep digging the ditch I'm in deeper and look like an ever bigger ignorant jackass, or should I just stop digging altogether.

Sean - despite what you and others may think, I go where the evidence takes me. The evidence you were providing before did not make your case, and I provided evidence from "the source" that simply showed the opposite to be true. Now this interview is offered, and we have a federal website that says one thing, and Powell saying the opposite.

Given my history in telecommunications and understanding of how websites are built and maintained, if I am faced with two opposing statements and one is from an official website and the other is from a person, I am inclined to believe the person. I chased down the source of this, which was a 60-minute interview dated 5/13, and it appears to be genuine. So I am happy to correct my position: the fed is apparently digitally printing money (for the most part), with some physically printed money as well, and my original belief was wrong.

Thank you for providing this piece of evidence.

[Sparko]

Sean - despite what you and others may think, I go where the evidence takes me. The evidence you were providing before did not make your case, and I provided evidence from "the source" that simply showed the opposite to be true. Now this interview is offered, and we have a federal website that says one thing, and Powell saying the opposite.

Given my history in telecommunications and understanding of how websites are built and maintained, if I am faced with two opposing statements and one is from an official website and the other is from a person, I am inclined to believe the person. I chased down the source of this, which was a 60-minute interview dated 5/13, and it appears to be genuine. So I am happy to correct my position: the fed is apparently digitally printing money (for the most part), with some physically printed money as well, and my original belief was wrong.

Thank you for providing this piece of evidence.

Lord of Mercy. A miracle right here on Tweb!