Current bull market is because of the $1T/yr govt deficits. How long can this last?

[fskimospy]

Where can I read more about this? It seems fundamentally wrong to me that growth can continue unabated forever. Apparently I don't understand the system.

Hmm, not sure where the best place to read more about it would be.

I think the best way to think about how debt can grow forever would be like this: GDP is like the country's income. If your income was $1,000/year and you were $1,000 in debt that would be impossible to pay off, right? If you were $10,000 in debt but you made $1,000,000 per year it would be super easy to pay off that debt, despite it being ten times larger.

So long as our "income" increases at the same rate or more than our debt, we can sustain larger debts indefinitely.

 

[Svnla]

I do read a lot of history books and I never read anything about a country or empire that was able to maintain its wealth and strength by spend more money years after years.

 

[Gonad the Barbarian]

Where can I read more about this? It seems fundamentally wrong to me that growth can continue unabated forever. Apparently I don't understand the system.

http://blogs.telegraph.co.uk/financ...nfinite-growth-on-a-finite-planet-easy-peasy/
I've gone back and forth on this, but I think we're now firmly at the level of technical capability now where this is in fact the case. I also think we need to look more closely at the potential danger of being at that point, of having a mass of people largely only relevant to the demand side of the economy and completely unnecessary to the supply side. If there's an existential threat to economics as we know it, it's that.

 

[sm625]

It wasnt just the deficits that drove this. FASB rescinded mark to market rules in March 2009. The Fed bought 2 trillion in junk MBS. Those securities were scooped up for cheap and sold to the Fed and the cash was used to make highly levered up bets. Treasuries that were sold to the Fed for inflated prices also served as a constant stream of leverable cash for the banks. These Fed purchases of treasuries drove down corporate rates as well. And that is actually what has really driven this bull market. The low cost of borrowing has allowed companies to repurchase record amounts of stock. This bull market is backed by only about 4% annual sales growth for companies in the S&P 500, which is profoundly anemic. This is half the rate of the mid 2000's bull market.

 

[dullard]

The real answer is we are close to defaulting like Greece.

One simple question: How does the US federal government's debt compare to it's assets? Answer that correctly and you'll realize that your post and this thread are both rediculous.

 

[dullard]

Where can I read more about this? It seems fundamentally wrong to me that growth can continue unabated forever. Apparently I don't understand the system.

Growth forever is a bit of a hard pill to swallow. History shows us that countries don't grow forever. But, eskimospy's point is still correct: a country can deficit spend forever. You can do that even without growth.

Suppose that you had a mortgage for $182,760. Suppose your after tax income was $2517/month ($30,204/year post tax). Suppose you spent a total of $2922/month ($35,064/year post tax). Thus, you are deficit spending month after month because your total payments are more than your total income. You need to borrow another $405 month after month forever. What happens to your debt?

Most people will answer that if you are spending more than you make, then you can't continue it forever. They assume that if you keep borrowing another $405/month that your debt will keep going up and that something will eventually have to give. However, that answer is naive.

The real answer comes down to the type of debt payments you are making. Suppose your mortgage was a new 10-year mortgage and you were paying 2.26% interest. If that is the case, then you are paying $1706/month on your mortgage ($1362 in principal and $344 in interest). Since that $1362 in principal is essentially paying yourself, you actually aren't deficit spending. Lets try the math:

1) This month you owe: $182,760

2) Next month you reduce your debt by $1362 in principal, add $344 in interest, and have to borrow another $405. Now your debt becomes: $182760 - $1362 + $344 + $405 = $182147. Notice how your total debt went down even though you had a deficit in your spending?

3) Repeat month after month, and your debt keeps going down even though you spend more than you earn each month.

Now multiply all numbers by 100,000,000 and you get exactly the federal government's picture. The US federal government owes $18,276 billion, brings in $2517 billion a month on average, spends $2922 billion, has a lot of 10-year treasuries at today's rate of 2.26%. Theoretically, the US could do this deficit spending forever and the debt would keep dropping. The real problem is that we just aren't spending our deficit on principal and are instead just charging more and more. It isn't the deficit spending that is the problem, it is that we are deficit spending in a poor way.

Add in growth and the pictures get better for both the mortgage example and the US government. With raises the mortgage gets easier and easier to pay off. With growth and more taxes, the US debt gets easier and easier to pay off.

 

[glenn1]

It isn't the deficit spending that is the problem, it is that we are deficit spending in a poor way.

LOL at the "poor way." The Keynesian stimulus crowd has said repeatedly they don't give a shit what the money gets spent on but only that it gets spent quickly. They'd prefer to give money to a homeless person to buy crack than replace infrastructure for that reason. Their idiot cult leader Krugman has proposed we fake an alien invasion just we can spend waste money more quickly.

 

[Blackjack200]

LOL at the "poor way." The Keynesian stimulus crowd has said repeatedly they don't give a shit what the money gets spent on but only that it gets spent quickly. They'd prefer to give money to a homeless person to buy crack than replace infrastructure for that reason.

If you want to have a productive conversation, you should point to specific examples. I'd say that there are certain examples where generating economic activity is so important that consideration of what you're spending on takes a bit of a back seat. An example would be 2008 when we risked sinking into a horrible 1930's style depression. Stopping that from happening was more important than avoiding waste in the short run.

In the long run, I think military spending is an excellent example of unproductive spending that should be shifted to productive (infrastructure) spending.

Their idiot cult leader Krugman has proposed we fake an alien invasion just we can spend waste money more quickly.

Again, you should quote or link here so we can discuss. Was Krugman actually suggesting that we do that, or was he just illustrating the importance of government spending when economic activity is in free fall?

 

[dank69]

If you want to have a productive conversation, you should point to specific examples. I'd say that there are certain examples where generating economic activity is so important that consideration of what you're spending on takes a bit of a back seat. An example would be 2008 when we risked sinking into a horrible 1930's style depression. Stopping that from happening was more important than avoiding waste in the short run.

In the long run, I think military spending is an excellent example of unproductive spending that should be shifted to productive (infrastructure) spending.



Again, you should quote or link here so we can discuss. Was Krugman actually suggesting that we do that, or was he just illustrating the importance of government spending when economic activity is in free fall?

Nuances like fiscal multipliers are lost on people like Glenn.

 

[OverVolt]

I'd say we can hit $30T

 

[glenn1]

If you want to have a productive conversation, you should point to specific examples. I'd say that there are certain examples where generating economic activity is so important that consideration of what you're spending on takes a bit of a back seat. An example would be 2008 when we risked sinking into a horrible 1930's style depression. Stopping that from happening was more important than avoiding waste in the short run.

In the long run, I think military spending is an excellent example of unproductive spending that should be shifted to productive (infrastructure) spending.

You can find examples in threads all over the place, here's one example. If you're going to loot the Treasury to pay for "stimulus" that you don't care what happens just because it increases money velocity, I don't care if Republicans similarly loot the Treasury to pay for tax cuts to the 0.001%. Maybe then you'll get really lucky and the ultra-rich can turn around purchase the poor to be their indentured servants, that will *REALLY* stimulate the economy.

Pretty sure it is more important that they are spending money. What the money is spent on doesn't matter all that much. On top of that, the really rich are probably stashing most of their excess money offshore.

So your ideal stimulus target is the homeless person who will spend any money you give him on booze within seconds of receipt? I for one cannot wait for our glorious future Keynesian utopia whose economy is based on cheese doodles and Malboros.

If you want to maximize the economic benefit, yes. You can hate homeless people, but they spend extra income immediately, which creates instant demand which is better than that money being parked in a fund by someone who already has more than they can ever spend. Economics is not about punishing the homeless and rewarding the successful.

Again, you should quote or link here so we can discuss. Was Krugman actually suggesting that we do that, or was he just illustrating the importance of government spending when economic activity is in free fall?

Here you go, with video so you can see it in full context.

http://business.time.com/2011/08/16/paul-krugman-an-alien-invasion-could-fix-the-economy/

 

[dank69]

See? So totally lost he doesn't realize he made all of our points for us.

 

[Blackjack200]

You can find examples in threads all over the place, here's one example.

Senseamp said:

If you want to maximize the economic benefit, yes. You can hate homeless people, but they spend extra income immediately, which creates instant demand which is better than that money being parked in a fund by someone who already has more than they can ever spend. Economics is not about punishing the homeless and rewarding the successful.

Which suggests he's arguing that stimulus does more good in the hands of the poor than the rich. You may debate that, but he is not arguing that it does not matter how stimulus money is spent.







Here you go, with video so you can see it in full context.

http://business.time.com/2011/08/16/paul-krugman-an-alien-invasion-could-fix-the-economy/[/QUOTE]

 

[glenn1]

Senseamp said:

If you want to maximize the economic benefit, yes. You can hate homeless people, but they spend extra income immediately, which creates instant demand which is better than that money being parked in a fund by someone who already has more than they can ever spend. Economics is not about punishing the homeless and rewarding the successful.

Which suggests he's arguing that stimulus does more good in the hands of the poor than the rich. You may debate that, but he is not arguing that it does not matter how stimulus money is spent.

So there is quite literally no use for "stimulus" money you'd oppose so long as it maximized money velocity in the name of economic benefit? Because I can imagine that given the incentive of hundreds of billions of dollars at stake the rich could devise a way to spend money really, really quickly and possibly very, very immorally. In the example above, do you really want to build "economic growth" on the back of someone's substance abuse problems? Do you have any base humanity left or have you gotten to the point that people's lives are just economic inputs to you?

BTW, it also gives incentive to some actors in the system to deliberately crash the economy to attempt to gain benefits and also encourages "broken window" fallacy economics. A government so inclined could use that rationale to take current wealth distributions and skew it much closer to a 1.00 GINI than you could ever imagine. But so long as the growth beast is fed who cares, right?

 

[dullard]

So there is quite literally no use for "stimulus" money you'd oppose so long as it maximized money velocity in the name of economic benefit? Because I can imagine that given the incentive of hundreds of billions of dollars at stake the rich could devise a way to spend money really, really quickly and possibly very, very immorally. In the example above, do you really want to build "economic growth" on the back of someone's substance abuse problems? Do you have any base humanity left or have you gotten to the point that people's lives are just economic inputs to you?

Again, you are flat out wrong that the homeless will spend it on substance abuse problems. Sure, some will be spent that way. But the vast majority is not.

Secondly, if we are talking about pure stimulus, then anything that is spent right away is an effective stimulus. It isn't necessarilly a good long term plan, but it is a good stimulus. So, yes, buying tons of beer and giving it to the homeless is an effective stimulus (probably a bad stimulus, but if we are only talking about stimulus then it would certainly stimulate the economy). Giving tax breaks to people to make their Swiss bank account larger is a very ineffective stimulus.

Third, if you paid any attention at all to the opposite side, you would have heard that they are arguing for money to be spent on infrastructure. You know, something that stimulates now AND pays long-term dividends. They aren't arguing to willy nilly spend for spending sakes. They have been arguing to spend on things the people would generally agree that the country needs and will help the vast majority of the citizens.

 

[Zorkorist]

LOL, I can't hardly believe you all think spending more, and getting more in debt, is the solution to anything.

That's so obviously wrong at face value.

-John

 

[glenn1]

LOL, I can't hardly believe you all think spending more, and getting more in debt, is the solution to anything.

That's so obviously wrong at face value.

-John

 

[Jhhnn]

You can find examples in threads all over the place, here's one example. If you're going to loot the Treasury to pay for "stimulus" that you don't care what happens just because it increases money velocity, I don't care if Republicans similarly loot the Treasury to pay for tax cuts to the 0.001%. Maybe then you'll get really lucky and the ultra-rich can turn around purchase the poor to be their indentured servants, that will *REALLY* stimulate the economy.Here you go, with video so you can see it in full context.

http://business.time.com/2011/08/16/paul-krugman-an-alien-invasion-could-fix-the-economy/

Heh. Stimulus spending just puts back the money that the financial elite took from the economy through debt creation.

And the only way that cutting taxes at the tippy top stimulates the flow of money is offshore & in the stock market casino.

 

[OverVolt]

Yes, thats how we bring down the rich.

Give money directly to homeless people so they can buy PEP junk food at the convenience store enriching whoever owns their 1,464,435,147 shares at $95.60 each.

I guess if they bought beer it would just make ABI rich.

 

[dank69]

Yes, thats how we bring down the rich.

Give money directly to homeless people so they can buy PEP junk food at the convenience store enriching whoever owns their 1,464,435,147 shares at $95.60 each.

I guess if they bought beer it would just make ABI rich.

Better to let the homeless starve and give the money to the rich directly. At least we are encouraging the rich to make more junk food instead of just sailing off into the sunset.

 

[glenn1]

Better to let the homeless starve and give the money to the rich directly. At least we are encouraging the rich to make more junk food instead of just sailing off into the sunset.

Aldous Huxley's "Brave New World" is the blueprint for utopia to Keynesians. Money velocity approaching infinity and complete "equality." To them, the movie Wall-E would be the fulfillment of their wildest dreams.

 

[Blackjack200]

Better to let the homeless starve and give the money to the rich directly. At least we are encouraging the rich to make more junk food instead of just sailing off into the sunset.

If poor people are allowed to starve, that will reduce poverty.

 

[bshole]

I do read a lot of history books and I never read anything about a country or empire that was able to maintain its wealth and strength by spend more money years after years.

I have a read a lot of history as well and I have never read anything about a country or empire that was able to maintain its wealth and strength.... PERIOD. Everything comes to an end..... every fucking thing.

Spending money does not crash empires, lack of manufacturing, engineering and innovation does. When our corporate masters suceed in transferring all engineering and manufacturing to Asian countries, THEN and only THEN will America be officially finished.

In the mean time, THANX OBAMA for my VERY fat retirement accounts..... at this rate I could retire at the age of 55..... 1.5 mil and counting.....

 

[Jhhnn]

Aldous Huxley's "Brave New World" is the blueprint for utopia to Keynesians. Money velocity approaching infinity and complete "equality." To them, the movie Wall-E would be the fulfillment of their wildest dreams.

Straw men of denial so soon?

 

[Kwatt]

Spending money does not crash empires, lack of manufacturing, engineering and innovation does.

I would through corruption into that mix too. Both monetary and moral....


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