RoR: Forum

Ed:

Yes, public borrowing creates debt based current spending, not balanced by current savings/investment, but also does so without creating incentives in the future.

When private entities take on creditlimited debt, an incentive is created to create new value in the future, to pay down debt, reduce interest payments, and also resore finite credit. With public debt, none of the above is created, just current spending. Not a single human being -- the real engines of economies -- wakes up the next day after the gov't has taken on more debt with any incentive to do anything, not even our Congress, who look ahead only to a meaningless debate over 'shutting down the gov't or painlessly raising the debt ceiling bysigning pen to paper.' The only think projected into the future is the debt obligation.

Public borrowing is precisely the source of inflation in the economies, a hidden form of taxation, not only on future economies, but on every economy between the present and the future. So what is masking inflation?

In the early 70s, we had the opposite dynamic; a shortage of manpower was fertile ground for inflationary wages. The 70 recession -peaked- with unemployment at 6.1% -- and remember, that was with unemployment actually measured, not today's by necessity funny numbers. What is masking inflation today is, economies truly flat on their asses, with high unemploment; wages are not going to rise when unemployment is so high, and prices will be inhibited from rising with so many people falling to their knees. Employers are not broadly competing for workers, or even, looking to expand, and almost every gov't policy in place has the impact of exacerbating those conditions, because the only thing America -can't- cut back on is federal do nothing overhead.

What is keeping gasoline prices down? Low demand.

Education? 500% inflation since the 80s. Thank you gov't subsidies.

Health care costs? Another gov't meddling induced 'crisis' now demanding a fresh gov't solution.

Housing? Still recovering from that market interventionist mess.

The three areas most intervened in by government are the three areas of the economies that far exceed the nominal rate of inflation.

The giant 'FAIL' written all over Big Government market interventionist policies is written so hugely that we can't even see the topof the letters above the clouds. And yet...well, go figue.

The fact that current government massive stimulus($3800B vs JFK's fully adjusted $1500B) is not resulting in broad(not the current selective)inflation should scare the shit out of folks, but it's not, because they are already flat on their ass, and got plenty else to worry about other than the gov't flailing about and making things worse.

regards,
Fred

Post 61

Saturday, August 31, 2013 - 8:12pm

Well, what about war bonds, Fred?

Imagine that a large country with a tiny government gets attacked and they need to mobilize resources for defense. Would you argue against a war bond where folks could buy a 2-year Treasury Bond with 7.3% APR in order to help "fight the good fight" (and to get reimbursed in the process; at a rate only slightly below the mean ROI they would receive in the markets)?

If payday comes due and the government correspondingly reduces outlays for a short period -- in order to pay back the citizens (cashing out on all their war bonds) without increasing any taxes or inflation in the process -- then I don't see where the problem is in that.

Ed

Post 62

Monday, September 2, 2013 - 8:44am

Ed:

For sure, not all debt is created equal.

War Bonds are old school, Ed. They were largely financed via private savings/investment.

Not the same as QE: gov't prints paper, and exchanges it not with private debt holders (exchanging savings/investment for debt) but walks directly to the fed window and says "here is public debt...now, manufacture current accounts for the government to spend as it sees fit.")

(Could also be debt from Fanny/Freddie, but essentially same thing-- government backed debt.)

Now, watch the shell game; Treasury fanny/freddy still has an obligation to pay back that debt... with interest... to the Fed. So money from paper enters the economies via current government spending ... but that same amount -- principal -- will also eventually leave, when Treasury/taxpayers make debt payments on that debt... plus interest, which is 'paid' to the fed. Net in, net out over time, right? Except for the interest...which is paid to the fed.... which then turns around and gives the interest back to Treasury to spend as current accounts! So effectively, after the in and out, Treasury prints a piece of paper...and in return, receives interest on whatever principal amount it borrowed from ... nowhere. From the black hole of debt that is supposed to be the central bank/fed, but in this example of leakage, is not really a black hole.

This is not quite as bad as 'monetizing the debt.' The difference would be, no payback of principal or interest; Treasury would simply print a piece of paper, hand it to the Fed, spend the newly created money, and never pay back the principal. (Paying back interest is irrelevant in our current model because the fed hands that interest to the Treasury to spend-- this is the endemic 'leakage' in our banking system that is the cause of long term built-in real inflation as a hidden tax on everyone.) In a purely legitimate functioning central bank system, such interest would simply be held by the central bank, and the next time it had to 'create' money from nothing, it would not need to create so much, because of the interest that it just held for this purpose. But our nation's pols couldn't resist, figuring not enough of America would focus long enough to understand what they were doing, and they were absolutely right. It is part of the contempt that our politicos have for the electorate.

That isn't how War Bonds worked. War Bonds were relatively legit on an accouning basis, as were US Savings Bonds. They were a transfer of current accounts from one current account holder (the buyer of the bond) to another (the Treasury) in exchange for the promise of payments in the future in excess of the purchase price(flow over time in exchange for lumpsum payment today.)

Not all debt is equal debt; not all bonds are created equal.

regards,
Fred

Post 63

Monday, September 2, 2013 - 11:56am

Ed:

It's really something to watch: government cheerleaders announce "Fed hands over record profits to Treasury!"

.. as if this theft from our economies was good economic news of some kind.

Laser printer -> paper -> spendable government current accounts in the economies from nothing, a tax on all of us(including the poorest.)

They are safe from any analysis. Folks know what profits are -- they are good things. And for the .1% that look at the details, they see 'interest' and are reassurred, because interest is what they used to get on their savings accounts. Interest comes from the interest tree, so it must be a good thing.

Why, that Fed, working closely with Treasury, is creating wealth for us all!

A shell game, safely beyond the grasp of the American electorate, because it requires the level of focus of your average eigth grader in Algebra I.

regards,
Fred

Post 64

Monday, September 2, 2013 - 1:57pm

Thanks for the responses, Fred.

By the way, I found a possible discrepancy in my "What capitalism and socialism look like when you compare them side-by-side chart".

Milton Friedman debated Samuel Bowles a while back and the debate has been uploaded to YouTube. In it, Friedman said that total government spending -- as a % of national income -- in Britain was only 10% in 1899. He also said that total government spending in the US (federal + state + local + property + sales + anything), excluding brief periods of war, was only 10% of national income -- from the founding all the way up to 1929. He made a big stink about that.

That's about 1.5 centuries of existence with 10% tax or less. The trouble is that I've got a cap on total taxes of 5% (based on the cost of implementing the Constitution as it was written; validated by other scientific data regarding sustainable levels of taxation in human societies), and so I call anything more than that -- anything more than about 5% tax -- "pseudo-capitalism" (i.e., not real capitalism). But Friedman appears to disagree with me, in that he seems to think that you can have a tax rate all the way up to 10% total taxation -- and still have genuine capitalism in a country.

That's one discrepancy I found.

Ed

Post 65

Monday, September 2, 2013 - 2:16pm

Ed:

Hey-- you know what they say: "Close enough for government work."

I'd laugh at my own joke, but it hurts.

regards,
Fred

Post 66

Monday, September 2, 2013 - 7:31pm

Fred,

The difference is that Friedman would say that the government is 3-4 times too large and that I would say that the government is 6-8 times too large. He would call for a 67-75% cut in government, whereas I would call for an 80-85% cut in government -- but we both would want -- and would think we need (and would think we can even prove we need) -- a government that is less than half of the burdensome size and 'leviathonic' scope that it is right now.

:-)

Ed

Post 67

Monday, September 2, 2013 - 9:38pm

I've no desire to quibble about the degree of the reduction AS LONG AS we start with a nice hefty cut, like Friedman's estimate, and then we can look at Ed's estimate. Let's get started and we can figure out where to stop later.

Post 68

Tuesday, September 3, 2013 - 8:38am

Ed:

Plus, consider what happens whenever those in government create a public debt obligation; all of it is like this:

1] Gov't prints a piece of paper.
2] Gov't receives IOUs -- current accounts, spendable cash. Demand on goods and services from those who create goods and services.
3] Govt' hands IOUs to folks, who hand over goods and services that they created.
4] Gov't pays off its debt -- by taxing those exact same people in the future.

(Where the various bonds differ is in their accounting and relationship to the money supply, their impact on the ratio of value in the economies to value-proxies in the economies. The only thing that is real value in the economies is value, not value proxies. And yet, value-proxies are exchangeable for value. Government takes full advantage over the electorate's confusion over this to implement hidden taxation-- to steal from the private economies unannounced.)

The folks producing the goods and services being taken by government are also the folks who eventually pay for those goods and services.

But not equally, and not always the same folks paying and the same folks producing, but in all cases, both are not the folks directing the spending and using the efforts of others to buy power over those same others and everyone. A potentially monumentally efficient criminal enterprise-- and it has reached its full potential in modern times; pure overhead/burden on wealth creating economies, which are succeeding in driving those economies to ground. Politicos/government weasels take full advantage even of this selective winners/losers, government chutes and ladders, in order to buy power for themselves ... using their direction of OPM. It is how their net worth manages to skyrocket while in office, along with their self-declared exemption from insider-trading laws. But hey; running for office is expensive. Somebody has to pay for it. Just ... not them.

Gov't is necessary, and necessary government must be paid for, but the current out of all control fascism on the Potomac is way beyond that, to the point it matters little what party is in power; it is simply two competing gangs of thugs wanting control of the OPM machine, of riding the nation like serfs born to serve.

I've argued that current gov't is at least 250% greater overhead than JFK's America; an extra $2.3Trillion/yr in federal 'stimulus' over JFK's America. Friedman says 3-4 too big, you say 6-8 too big.

...and, we're all losing the argument.

regards,
Fred

(Edited by Fred Bartlett on 9/03, 8:49am)

Post 69

Tuesday, September 3, 2013 - 11:46am

Ed:

Another informative comparison, over time, is the % of our federal budget that was devoted to defense. The primary reason for being for our federal government was as an outward facing instrument, not an inward facing instrument. National defense was not only its primary reason for being, but the most expensive element of its mandate.

As recently as JFK's America, defense was over half of the federal budget. (Something like $52-53B of JFK's $100B was for defense at the peak of the Cold War. Fully adjusted, his complete budget would be maybe $1500B...and defense would be about $795B of that. We're currently at maybe 71% of JFK's adjusted defense spending...but at over 250% of his total spending. It clearly ain't the guns, it's the butter.

It is only recently that the % of the budget spent on defense has dropped. Well of course, the Cold War is over, and WWII is long over.

We seamlessly replaced those with 'the war on poverty' and 'the war on drugs' and 'the war on crime' and 'the war on terror' and 'the war on guns' and 'the war on Big Gulps' and 'the war on affordable housing' and 'the war on ignorance' soon followed inevitably by 'the war on affordable education' and ...

... my, how the definition of 'necessary government' has exploded. I had no idea how badly we needed government.

The key word is 'badly.' Because all the greatest hits of Big Government are either contemporary with or predate JFK and his $100B in federal overburden on our economies.

Yet...JFK's America paid for its intergenerational SS obligations...what exactly is it that the current generation deserves in terms of SS that JFK's America did not deserve?

You'd almost think the very purpose of all that now out of control butter was to destroy America from within; to do what couldn't be done with guns...

regards,
Fred
(Edited by Fred Bartlett on 9/03, 11:48am)

Post 70

Tuesday, September 3, 2013 - 8:26pm

Steve,

I would not quibble on that level of detail, either. From extrapolation based on game theory findings regarding Iterated (repeat-play) Public Goods games with realistic multiplication factors, a society with 10% tax can exist for dozens and dozens and of generations before ultimately (if ever) going extinct.* And dozens of generations is plenty of time for us -- or our grandchildren, or their grandchildren -- to get things worked out.

:-)

Ed

*Note: You can't make that kind of a "We'll be okay" statement about a society with a total average tax rate of 50% or higher. Those kinds of societies go extinct (stop producing enough value to survive) after several generations.

Post 71

Tuesday, September 3, 2013 - 8:45pm

Fred,

Another informative comparison, over time, is the % of our federal budget that was devoted to defense.

Good point. In 1965, defense spending was 49% of all spending (7.2% of GDP), in 2010, it was 14% of all spending (4.9% of GDP).

But you brought up -- in post 68 -- a great point about how gov't deals with debt. There are 2 factors of national debt: public debt (what it is that gov't owes to people, like bond holders and investors) and intragovernmental debt (what it is that gov't owes to itself). When you add these 2 numbers together, you get some astronomical amount: over 16 trillion dollars! That's outrageous.

If the US tried to join the EU, for instance, we'd be denied based on our national debt. To get into the EU (according to the Maastricht Treaty), you can't have a national debt that exceeds 60% of your GDP. Ours does by a long shot. In fact, we apparently can't even meet the criterion for yearly deficits (<3% of GDP).

Well, there goes our chance to make it into the EU and to adopt the Euro as our medium of exchange!

:-(

Ed

(Edited by Ed Thompson on 9/03, 8:49pm)

Post 72

Wednesday, September 4, 2013 - 6:59am

Ed:

If the US tried to join the EU, for instance, we'd be denied based on our national debt

Well, if there is a silver lining to be found in our massive debt, you have for sure found it!

Sadly, that historical shrinking of the federal budget spent on defense is not so much a result of spending less on defense (it is, a little; we are at 71% of JFK's adjusted defense spending, but he was POTUS at the peak of Cold War)than it is spending way more in new areas previously off limits to the federal government.

regards,
Fred

Post 73

Wednesday, September 4, 2013 - 7:29am

Ed:

I implore you, do not sanction the idea of normalizing spending to GDP: there is no basis for that except Totalitarianism and centrally planned economies.

Think about it; what is the rationale for scaling the federal government to GDP? Only if we believe it is the function of that government to 'run the[sic] economy.'

Shouldn't the sign of progress -- of efficiency over time in self governance, be an every year decreasing % of (poorly defined) GDP? JFK's era was 3 years before IBM intrduced the 029 keypunch; shouldn't there be some improvement in the percapita efficiency of self-government between then and now? Why is only the private sector expected to see gains in productivity...but never the public sector? Hello? Wake up and smell the folks riding others like a pony.

Plus, the definition of GDP is itself rigged with a political assumption. It is not 'mathematics.'

GDP = C1*P + C2*G + C3*(Inv) + C4*(Imp-Exp)

It is purely a political assumption -- not accounting -- that C1=C2=C3=C4=constant= +1.0

Especially...C1 and C2. I doubt in present times that their signs are even the same, when we are talking about defining a measure of 'growth' something called 'the economies.'

If G is public debt fueled public spending, then how can a secretary, running a laser printer and printing out a piece of paper, then walking over to the Fed window where out of nothing appears a trillion dollars in spendable by he government paper appears, possibly be scored as 'growth' in the economies by 1 trillion dollars? Nobody has produced a new damn thing of value worth 1 trillion dollars. The gov't will expropriate 1 trillion dollars of value already created...and later, pay off its debt by taxing the same private economy that it just took 1 trillion dollars in value from for that same 1 trillion dollars...plus interest---which interest and principal it will pay back to the black hole of the Fed, but who will then *receive* from that same Fed the interest just paid[*]. When this happens, Bernanke announces "record 'profits' turned over to the Treasury by the Fed' -- as if this leveraged blind taxation was good economic news. The Treasury then takes this same interest and demands yet more real value from the private economies-- who have just been overtaxed to make the interest payments.

And that entire chain of envents is value balanced by a secretary running a laser printer and printing out a piece of paper. It is all -- all of it -- simple expropriation of real value from the private economies, shuffled around via gov't chutes and ladders from some to others in order to buy power and political favor for those who told the secretary to go run a laser printer...

Never buy into that scam by normalizing anythng to GDP; GDP is a rigged sucker bet--and even that isn't enough to sate the beast. (As in, we'd kill today to have JFK's fraction of GDP funding government.)

regards,
Fred

[*] A properly functioning central bank would not do this; a properly (on an accounting basis)central bank would just add that interest to its available current account, so that the next time it needed to 'create money from nothing' it would not need to create quite so much, because of the 'earned interest' in its current account. Instead of manufacturing 'new money' out of nothing, it would just turn back that interest to the next debtor. As it is, these payments from the Fed to Treasury of 'profits' based on interest just paid by the Fed are 'leakage' in the central banking system; not quite as bad as monetizing the debt(same thing but no principal repayment), but 'running the printing presses' all the same.

Bernanke should announce "The Treasury just printed a record amount of money from nothing and the government will be around soon demanding actual value for that funny money as yet another form of hidden taxation on everone." Instead, he announces "Record profits turned over to the Treasury by the Fed" and the American electorate nods along and is amazed at the efficiency of its government in producing 'profits.' We are idiots, and we vote.

Post 74

Wednesday, September 4, 2013 - 8:06am

Ed:

When you look in detail at how QE- Quantitative 'Easing' actually works, it makes you guffaw that they had the balls to name this 'easing.'

1] Print 1 Trillion new dollars from nothing.

2] Go out into private economies and demand real value for that funny money-- value created by others.

3] Go out into those same private economies and overtax them, clawing back that same 1 trillion dollars, plus interest.

4] As a kicker, return with the just overtaxed interest and demand more new value from the same provae economies.

Ignore the in and out to the private economies, and basically, the government shows up and demands 1 trillion in value created by the private economies, then also overtaxes the same private economies by the amount required to payback the interest on the in and out. It's like coming back after a rape and demanding a BJ.

And here is key; structure the in and out politically, aiming the chutes and ladders in such a manner as to curry political favor...for who?

Now, here the failed theory; they will inject the funny money when the economies are on their ass, with high unemployment to mask inflation...and will wait until later-- when the economies have 'recovered' -- to overtax them.

Well of course there was no stimulus (the net supplied NEW effort was a secretary running a laser printer and printing out a bond!) So after five years of 'quantitative easing' ... all that is left is the debt obligation after the innefficient chutes and ladders.

They should have more honestly labeled this raping and pillaging as SWB+V(sodomize with brick + vasoline) but QE(quantitiative easing) sounds more civilized.

They kicked the can(after sodomizing it with a brick)down the road...and made things worse in the future. Well, the future is still coming.

Hey...time for a war.

regards,
Fred

Post 75

Wednesday, September 4, 2013 - 9:30am

Hi, Frediano! Link.

Saturday, September 7, 2013 - 10:09am

Fred,

Ed:

I implore you, do not sanction the idea of normalizing spending to GDP

Okay, I'll take your advice, though I'm sorry to say that I may use Rothbard's concept of GPP (gross private product; before the government taxes away up to half of all your personal value) -- which I call "private-sector GDP" or "non-government GDP" -- but I understand that you may still have problems with that, because the private producting remaining in the private sector (Rothbard's PPR) would be even better. As recently as last year, the GPP in the US was under $13 trillion. Spending should not exceed 5% of that -- and 5% of $13 trillion is $650 billion, the cost it would take to fund a military that is stronger than any other country.

Ed

Post 77

Saturday, September 7, 2013 - 10:29am

Fun Facts about Rothbard's substitution for "GNP" (and, by extension, it's cousin: "GDP")

What I have shown is that to the extent that government spending consists either of waste or of intermediate goods, measurement of the standard of living of those working in the private sector is rendered much more accurately by Rothbard's measurement of PPR per private sector worker than by the Department of Commerce's per capita GNP. The former indicates that the standard of living for workers in the private sector has been at a standstill since 1964, while the latter exhibits growth in the 2 percent per annum range.

-GNP, PPR, and the Standard of Living

Since 1964, we've been, at least undulatingly, going downhill -- which is something you already had mentioned. There was an undulating, transient, inflation-caused "standard of living for workers in the private sector" peak achieved in 1973 -- resulting in the greatest worker's purchasing power ever achieved by man -- but, due to statism-collectivism, things have gotten worse (for 40 years in a row) from that point. Now, with all the altruism-fueled central planning and central control (taxes, regulation, etc.) workers are much worse off, in real terms.

Ed

(Edited by Ed Thompson on 9/07, 10:43am)

Post 78

Saturday, September 7, 2013 - 10:34am