The Obama Presidency

[Gooch]

This is from August but this guy gets it. And this isn't meant to be a criticism of Obama because: 1) I like him, and 2) I believe he was handcuffed in many respects by the Pelosi/Reid duo. There are various economic theories out there that are taught. Most ignore the operational reality because they're still using economic models that were in place pre-1971. After 1971, those models for the most part became obsolete. Most of your parents were born before 1971. If the date August 15, 1971 bears no signficance to them, chances are they never had a clue what changed about the global economy and monetary system. The changes were subtle from the non-government, users of currency perspective as budgetary constraints as they were known still applied. But that date granted monetary sovereignity to issuers of currency.

[Drewbacca]

That's you isn't it? Admit it.

[Joust Williams]

man he went apeshit

[Gooch]

I don't blame him. It is frustrating to have to explain operational reality to a bunch of tin-foil hat wearing fear mongerers who still believe in the Boogeyman. Just read some of the absurd comments (I've quoted two of them on this page) and you'll sit there stunned at how ignorant we are to the extent that it negatively impacts our decision making and process of leadership appointment. This absolutely absurd line of thinking (i.e. "borrowing" from China, "running out of money", "tax cuts cost us", "federal deficit must be cut", "government needs to raise money") is beyond foolish and embarrassing to associate with otherwise rational, educated, somewhat intelligent people.

[MarsKitten]

Tell me so I can gauge the degree of misunderstanding:

1) Why does the issuer of a non-convertible currency, the issuer having a monopoly on that currency, assess taxes in the first place when it has no operational constraint restricting it from issuing/printing/electronically creating as much of that currency as it pleases (aside from self-imposed restrictions)? Basically, why are taxes assessed in the first place if the issuer of the currency does not need to collect them to increase its supply of US Dollars?

2) If the issuer of the currency does not spend any of the newly issued currency, how does it get into the economy?

3) If the issuer of the currency increases its taxes, does that take money out of an economy or does it increase the money in an economy?

1. In theory to pay for the things it spends money on. This was the case in the old gold = money constant we used to have. But with fiat currency you have to keep the supply in check otherwise you have inflation, the widespread devaluing of the currency. Controlling for economic expansion, wear and tear and the amount of money to keep the "value" of an economy flowing

2.It doesn't. Other than existing in theory. The threat of released reserves can lead to anticipatory inflation.

3.It could do either. If the money is all spent, we've created economic flow. If we spend too much of a fiat currency by paying debt by moving numbers around we're effectively printed new money. Sure the idea of debt keeps inflation in check, I mean most people trust the government to pay its debts. But if they're just moving numbers on paper, eventually someone will figure out and it could create a panic and inflation, or do nothing. Debts might not matter to the government anymore.

What is important is economic flow. Our current economy is stagnant because there is very little flow. I'll use myself as an example. I'm a legal research, a valuable employee worth anywhere between 20-100/h. My services are worthless to my service/product providers (internet, grocers, amazon) but extremely valuable to lawyers. By working for lawyers I gain money for the work I do (monitizing my value). I can choose to spent it, pay debts or whatever but I've actualized my value and spent it. The flow of value/capital is important because it allows me to trade my valuable services to someone who'll pay high and i can spend it efficiently. When economic flow is stagnant I have to get other jobs because companies aren't hiring me to work for my maximum value (so to survive I have to work as a waitress for example) thus my value is undermonitized.

This is why taxing at times when money is plentiful but there is no economic flow (now) is actually a great thing. It forces money and economic flow back into economy as a whole when businesses are unwilling to spend it because uncertainty of the future. The government is easily one of the largest spenders in the world, and providing money for welfare, personnel and other services they can create economic activity when it would other be stagnant. When governments stop contracts, freeze hiring and stop paying out social services/welfare this means there is less economic activity and the money remains locked up in savings. Which is why the Bush tax cuts haven't worked. They only allowed marginal businesses to survive and big ones to save more money. If you threaten them with inflation (the devaluing of their savings) or taxes you get money spent and create economic flow again

Btw to the biz/econ majors here. I'm bad with the "official" terms so i'm probably misusing them.

Tax cuts do "cost us" in long run. To Gooch:
1. There's less economic flow if we don't tax in times where businesses have record amounts of savings.
2. Debts today accumulate something called interest. Interest eventually has to be paid in the real world. Thus if our debts are larger we pay more interest which creates no value for us other than the money borrowed. We're trading money now, which if inflation occurs below the interest will be worth less than the money we pay later. If our debts continue to accumulate as they have in the past without raising taxes or seriously cutting our expenditures (whichever you feel is the better solution) our government will run further in debt every year since our tax revenue (the money we take in) never matches what we spend. If our debts get to the point where we're not able to feasible pay them, people who buy government bonds, institutions, countries ect will stop buying bonds which means we won't have money to borrow and thus will have to pay for what we use now or pay out more interest on the bonds which further expands our debt and the interest paid on it. It turns into a vicious cycle. This isn't a problem now, but it will be in 50ish years or more.
3. We could print more money, which leads to inflation which is generally bad as it undermines the value of our money, damages the exchange rate (ie we pay more for imports) and lowers the value of labor in the short term and creates market instability as everyone tries to catch up to values, but resists paying "more". But it devalues debts unless the interest keeps up with inflation, but costs the debt holder their profit.
4. We could just continue onward business as usual but the level of our debt per year and over all debt will grow which may make it harder for the united states to find bond buyers in the long run. Bit of a gamble how that might go.
5. Our national debt may or may not be connected to our stagnant economy. The money is there, its just the systemic instability introduced by the series of crisis has dried up money in investments. No one wants money tied up in the long term if they feel they might need it in the near future if business gets worse and they need money to survive the short term. The ideas are in the same realm but aren't actually directly influencing each other yet other than worrying economists and investors.

My proposal is: tax businesses to increase economic flow. This gets money into the economy again through government spending. Ideally to pay down our debt (b/c that's the financially responsible thing to do, probably my iffiest proposition, dick cheney might be right: deficits don't matter), create jobs by repairing the infrastructure of this nation (similar to the public works of the 1930s) which employs people on the low end and gets them spending again, pay out welfare which keeps people from falling into poverty and keeps local businesses open with the spending of both. Businesses will eventually expand in the form of employees or new shops, which leads to further economic expansion or invest in wall street which pumps more money into other businesses.

[Gooch]

1. Seeing that we are in a non-convertible fiat money regime, tax cuts don't cost anything and taxes aren't needed to pay for anything, not in theory, in fact. Also, taxes are assessed to create demand for that fiat currency (only thing accepted to extinguish tax liabilities) and to regulate aggregate demand/spending power (by taking it away, moral hazard applies obviously).

2. Your referenced threat could based on expectations theory but supply and demand will still be the driving forces and there isn't an actual increase of money supply. This is why the Fed has largely been unsuccessful in its monetary policy. The demand for excess reserves is inelastic. Excess reserves and currency make up the monetary base, but the monetary base does not equal money supply. Inflation ultimately is too much money chasing too few goods. Inflation is also required to offset deflation. Inflation also increases the value of dollar denominated assets. It also decreases the real value of dollar denominated debt. In a balance sheet recession as the one we are in, you want higher asset values and lower liabilities to reduce the amount of balance sheet repair for the private sector.

3. Tax increases are contractionary as they take money out of an economy. The degree of stimulus provided by tax cuts is arguable (I actually hope that a larger payroll tax cut is passed and payroll tax holidays get extended to employers, not just employees) but they clearly do not take money out of an economy, even if they just sit in a savings account, creating excess reserves to one day be lent out to borrowers (businesses, entreprenuers, individuals, etc). You increase taxes during periods of sustainable economic growth to prevent overheating. Businesses are not sitting on cash for no reason. They are still deleveraging. They are tapping the bond markets to roll over debt at more favorable rates (refinancing) freeing up cash flow as there is less going to debt servicing. They are buying back stock. They are increasing dividends. There was more M&A activity. They are investing overseas. The best way to incentivize business spending is to restore the health of the economy to the point it can sustain itself. Then you can cut spending and phase out the tax cuts.

You seem not to acknowledge that money supply destruction is still occuring. Debt deleveraging is a destruction of money stock. The flows going towards deleveraging may have slowed their rate, but there is still a lot of wood to chop regarding private sector debt, and rising unemployment will only add to and re-accelerate this process.

[Gooch]

You keep saying "debt" which, I guess is the popular way to view it: fiscal deficit, debt, whatever. A synonym for this would be along the lines of "government issued currency spent by the government itself".

[Gooch]

1Tax cuts do "cost us" in long run. To Gooch:
1. There's less economic flow if we don't tax in times where businesses have record amounts of savings.

Taxes take money out of an economy. Your justification for this seems to be (correct me if I am wrong) by threatening to take money away from companies, the wealthy, whomever, they will go ahead and spend it. Ok, so they spend it. And then you tax them. You still take money out of an economy. Taxes only operationally function to take money out of an economy. Any activity they may or may not influence is not as certain as that is.

2. Debts today accumulate something called interest. Interest eventually has to be paid in the real world.

What is the interest paid in?

Thus if our debts are larger we pay more interest which creates no value for us other than the money borrowed.

The government's debts, not ours. Public vs. Private. Budgetary contraints aren't the same for each. And "the money borrowed"? From whom does the issuer of currency ever need to "borrow" from?

We're trading money now, which if inflation occurs below the interest will be worth less than the money we pay later. If our debts continue to accumulate as they have in the past without raising taxes or seriously cutting our expenditures (whichever you feel is the better solution) our government will run further in debt every year since our tax revenue (the money we take in) never matches what we spend. If our debts get to the point where we're not able to feasible pay them, people who buy government bonds, institutions, countries ect will stop buying bonds which means we won't have money to borrow and thus will have to pay for what we use now or pay out more interest on the bonds which further expands our debt and the interest paid on it. It turns into a vicious cycle. This isn't a problem now, but it will be in 50ish years or more.

Who do we have to borrow US Dollars from? People, countries who buy US Treasuries aren't lending us a penny. They're putting their US Dollars in a interest bearing savings account held with the Fed. How did they get those dollars in the first place? Why would we ever have to borrow them? We could stop issuing US Treasuries in entirety.

Your other comments are redundantly addressing "issues" that already have been explained.

[MarsKitten]

Yes, but you're forgetting that taxes take money out of the economy and also (here's the important part) put it back in. If the businesses are holding onto the money it isn't IN the economy anyway. Its similar to your government printing a reserve that doesn't get distribution.

I never said threaten to tax. I said merely threaten inflation; taxes exist and are apart of doing business anywhere. They make the infrastructure that supports business possible, which must be upkept and built when there is expansion.

If they're threatened with inflation that devalues reserves of money, therefore people will either spend the money on investments which will gain value, improvements to said businesses, or other sources of money/value.

But you seem to think that by having the federal reserve control the dollar we essentially control the debt and its true value. Its true we control the dollars but we don't control their value except by how many dollars are on the market. Interest paid/charged by the federal reserve is what actually takes money out of the economy but only if they don't put it back out.

The problem is the money has to come from someplace eventually. We can simply print money to pay it but this increases the money supply leading to price inflation. I see price inflation as bad, obviously.

We can lend money to our selves, but well this devalues the money as well, price inflation bad cause we're just printing more money, on the theory we'll pay it to prevent price inflation.

We can borrow money, again has to be paid back with interest. So we trade debts now for bigger debts later

We can declare the debts null via our sovereign power or ignore them. But that leads to people not lending to us. Which means we either have to raise taxes to pay our debts, or print money, which leads to inflation.

So on the previous 4 paragraphs i say to avoid inflation or higher taxes or both later we pay them now. Unless you think we can lend money or ourselves or print money without consequence.

So do you:
1. Consider price inflation of our economy an issue, good or bad;
2. See debts as a thing to be paid, in full or do we just pay them lip service;
3. What do you see as the key factor of the current economic depression or are we not in one at all? (i say it is the lack of economic flow due to the amount of savings businesses currently hold)

De-leveraging is fine and takes time, sure I get this, but companies are holding onto record reserves which at the moment are more damaging than helpful. Yes I get there needs to be inflation to counter the deflation to keep with the fluctuations win the market. But I disagree that the Fed has failed to do so, I disagree with them on many points but I think they're doing right so far. Economic overheating is not prevented by taxes but by regulation to keep the economy from getting too irrational on what it does and does not do, the economic failure was caused by investment banks trying stupid things, lending money to people they shouldn't have and looking the other way when problems were super obvious. We made some good moves toward mending the damage like the TARP, as much as i disagree with it in theory it worked, but the government should have stepped in sooner.

[Gooch]

I feel like we're going in circles. I have some laundry to do, some wine to drink, and if I'm just lucky enough, maybe even some sex waiting for me. So just rewatch this a few times and digest what he's saying.

Then watch this because this was the monumental event that no one from that generation seems to have comprehended the effects of: giving the US and any other issuers of own currency monetary sovereignity. The US benefits the most because of the USD's status as world reserve currency and the fact that all of its obligations (yes, including interest payments) are denominated in the very same currency it issues literally at will. If only I had that power, all of you would be playing Killzone 2 right now.



Note the words "the new prosperity" Nixon uses at the beginning.