Our Country's Debt

[erynthered]

The fed is now buying our debt? Have we ever done that before? Has any country survived this? The Fed is buying the shiit bonds from CA?

 

China is worrying about US inflation? HA! VAT tax is now on the table? Has any country spent their way out of a recession??

Well this administration is sure trying. Is there a history of a Country spending their way out of a recession??

 

Oh don't worry, obama wont raise income tax on people making less than 250K, or was that 200K, no wait 185K?? He wont have to.

 

You know gents, I think there is a large majority of posters here who haven't gone through a inflationary period. Enjoy it, its cool.

[/dev/null]

After the inflation gets done, that magic $250k number will be about what minimum wage workers make

 

Enjoy your fries from the $20 menu

[Typical TBD Guy]

We're all Austrian economists now.

[/dev/null]

We're all Austrian economists now.

 

Is an Austrian Economist like a Cleveland Steamer or Alabama Hot Pocket?

[erynthered]

After the inflation gets done, that magic $250k number will be about what minimum wage workers make

 

Enjoy your fries from the $20 menu

 

 

Not sure 20 dollar fries, maybe $4 bucks.

 

Just think, as a parent I can look forward to $8 a gallon milk, or lunch meat costing 10 bucks a sandwich.

 

 

obamas the man of change alright. I'm so lucky he came to power when he did.

[TPS]

The fed is now buying our debt? Have we ever done that before? Has any country survived this? The Fed is buying the shiit bonds from CA?

 

China is worrying about US inflation? HA! VAT tax is now on the table? Has any country spent their way out of a recession??

Well this administration is sure trying. Is there a history of a Country spending their way out of a recession??

 

Oh don't worry, obama wont raise income tax on people making less than 250K, or was that 200K, no wait 185K?? He wont have to.

 

You know gents, I think there is a large majority of posters here who haven't gone through a inflationary period. Enjoy it, its cool.

Most people haven't gone through a deflationary period, aka the Great Depresson. A little inflation is better than deflation any day. Ask the Japanese.

 

Countries spend their way out of recessions all the time, mainly through what's known as automatic stabilizers: taxes go down and spending goes up automatically in downturns causing deficits to widen. In severe recessions the govt will pursue expansionary fiscal policy, like Obama has done. In other cases they'll use the excuse of supply side economics to pursue expansionary fiscal policy, which causes deficits.

 

A lot of posters keep saying there's going to be a great inflation. I'd wish someone would explain exactly how that will occur. Given what the Fed has done, how exactly will it create inflation? Anyone? Anyone? Bueller?

[Gene Frenkle]

Most people haven't gone through a deflationary period, aka the Great Depresson. A little inflation is better than deflation any day. Ask the Japanese.

 

Countries spend their way out of recessions all the time, mainly through what's known as automatic stabilizers: taxes go down and spending goes up automatically in downturns causing deficits to widen. In severe recessions the govt will pursue expansionary fiscal policy, like Obama has done. In other cases they'll use the excuse of supply side economics to pursue expansionary fiscal policy, which causes deficits.

 

A lot of posters keep saying there's going to be a great inflation. I'd wish someone would explain exactly how that will occur. Given what the Fed has done, how exactly will it create inflation? Anyone? Anyone? Bueller?

Your facts and economic theory have no place in this argument.

[Typical TBD Guy]

Most people haven't gone through a deflationary period, aka the Great Depresson. A little inflation is better than deflation any day. Ask the Japanese.

 

Countries spend their way out of recessions all the time, mainly through what's known as automatic stabilizers: taxes go down and spending goes up automatically in downturns causing deficits to widen. In severe recessions the govt will pursue expansionary fiscal policy, like Obama has done. In other cases they'll use the excuse of supply side economics to pursue expansionary fiscal policy, which causes deficits.

 

A lot of posters keep saying there's going to be a great inflation. I'd wish someone would explain exactly how that will occur. Given what the Fed has done, how exactly will it create inflation? Anyone? Anyone? Bueller?

 

[Fed printing fiat currency] + [economy contracting] = [inflation]

 

Money follows the same law of supply and demand that all other goods and services do. There's no getting around it. You Keynesian lovers better pray that Obama's massive government works program jumpstarts the economy quickly and significantly. Because if it doesn't, we will all be revisiting the late 1970's all over again. And yes, inflation matters. It adversely affects everyone, especially the lower and middle classes.

[StupidNation]

[Fed printing fiat currency] + [economy contracting] = [inflation]

 

Money follows the same law of supply and demand that all other goods and services do. There's no getting around it. You Keynesian lovers better pray that Obama's massive government works program jumpstarts the economy quickly and significantly. Because if it doesn't, we will all be revisiting the late 1970's all over again. And yes, inflation matters. It adversely affects everyone, especially the lower and middle classes.

 

The problem with your argument is that it goes beyond a sound-byte and guys like Gene and John Adams will never understand until they learn to study solid economic fundamentals.

 

The projection is we need 4% real growth next year above inflation. If we don't enjoy the ride, and it won't last long. Although on the flip side it will make the next election cycle more interesting when we can forget the question of "how are you holding up?" or "How is your wife and family during all these travels" and it will finally go to "How will this country exist in it's current state in 10 years?"

[Typical TBD Guy]

The problem with your argument is that it goes beyond a sound-byte and guys like Gene and John Adams will never understand until they learn to study solid economic fundamentals.

 

The projection is we need 4% real growth next year above inflation. If we don't enjoy the ride, and it won't last long. Although on the flip side it will make the next election cycle more interesting when we can forget the question of "how are you holding up?" or "How is your wife and family during all these travels" and it will finally go to "How will this country exist in it's current state in 10 years?"

 

Which is, of course, highly doubtful.

 

Obama's long-term projects (renewable energy, health care) aren't even expected to help for another 5-10 years. And his short-term projects (bailing out bad banks, bailing out auto companies, infrastructure building) won't be nearly enough to generate that 4% type of growth you stated, since most people are IN DEBT and will be using any extra money they have to PAY OFF DEBT instead of buying more sh-- and borrowing more money.

[Fingon]

Most people haven't gone through a deflationary period, aka the Great Depresson. A little inflation is better than deflation any day. Ask the Japanese.

 

Countries spend their way out of recessions all the time, mainly through what's known as automatic stabilizers: taxes go down and spending goes up automatically in downturns causing deficits to widen. In severe recessions the govt will pursue expansionary fiscal policy, like Obama has done. In other cases they'll use the excuse of supply side economics to pursue expansionary fiscal policy, which causes deficits.

 

A lot of posters keep saying there's going to be a great inflation. I'd wish someone would explain exactly how that will occur. Given what the Fed has done, how exactly will it create inflation? Anyone? Anyone? Bueller?

Demand for the dollar is plummeting, while we are printing ludicrous amounts of money. That's how.

[TPS]

[Fed printing fiat currency] + [economy contracting] = [inflation]

 

Money follows the same law of supply and demand that all other goods and services do. There's no getting around it. You Keynesian lovers better pray that Obama's massive government works program jumpstarts the economy quickly and significantly. Because if it doesn't, we will all be revisiting the late 1970's all over again. And yes, inflation matters. It adversely affects everyone, especially the lower and middle classes.

Where is all the money the fed is printing? Who has it? Who's spending it? How will it make prices of goods and services go up if no one's incomes are changing and more people are losing jobs?

[TPS]

Demand for the dollar is plummeting, while we are printing ludicrous amounts of money. That's how.

If you mean internationally, that could be one source of inflation as it will make imports more expensive (all else equal, if you assume we spend 15% of our income on imports, then for every 10% depreciation of the dollar that can lead to 1.5% additional inflation).

 

With respect to your second point, the Fed has created reserves in the banking system (swapping bad assets for reserves); it has not printed ludicrous amounts of money. The banking system has almost $1 trillion in excess reserves right now, and until they start lending, that's all it is--electronic chits, not paper. And if you believe the economy will continue to sputter, as Japan did, then there won't be signifiant loan demand, which is how those reserves become "money." As long as there is excess capacity (relatively high unemployed labor and real capital) in the US and around the globe, inflation of goods and services will remain weak no matter how many reserves are injected into the banking system.

 

On the other hand (and I believe this is what you all think is happening), if the Fed starts monetizing the deficits, and from its balance sheet it doesn't look like it's done so yet, and government spending is used to buy goods and services, not toxic assets, then that could put upward pressure on prices if it helps push unemployment down and capacity utilization up. The Fed can get away with "monetizing the debt" (printing money) until the latter happens.

[GG]

Where is all the money the fed is printing? Who has it? Who's spending it? How will it make prices of goods and services go up if no one's incomes are changing and more people are losing jobs?

 

A deficit by any other name ....

 

What exactly is deficit spending?

 

Is a deficit an input or is it an output in a formula? I vote for the latter.

 

Thusly, if we can agree on those basics, then we may agree that a deficit can be created by either holding revenues constant and increasing spending, or by holding spending constant and decreasing revenues. We can hypercharge that deficit by decreasing revenues and increasing spending.

 

Which scenario is playing out now?

 

If we take the last scenario as a given, with an uncertain recovery ahead, moves made by the administration that put private capital on the sidelines, increasing spending on an aging population facing a shortfall in SS - how is that not an inflationary outlook?

 

My guess is that the bond market (actually a collection of thousands of traders sitting at their desks or holed up in bunkers eating Dinty Moore) isn't looking at today's monetary situation, but towards the maturity of the bonds they're buying, when they push up yields.

 

Perhaps you should revisit Tom Wolfe's rationale on why he called bond traders, Masters of the Universe. He was right.

[John Adams]

The problem with your argument is that it goes beyond a sound-byte and guys like Gene and John Adams will never understand until they learn to study solid economic fundamentals.

 

The projection is we need 4% real growth next year above inflation. If we don't enjoy the ride, and it won't last long. Although on the flip side it will make the next election cycle more interesting when we can forget the question of "how are you holding up?" or "How is your wife and family during all these travels" and it will finally go to "How will this country exist in it's current state in 10 years?"

 

I'll quote the Great Gazoo again and maybe more appropriately in your case, "Hello dum-dum."

 

I believe we're headed for inflation, and perhaps big inflation. But I'm also not shocked that we haven't seen it yet.

 

The economy is EVERYTHING. Without a strong economy, the goofy libs can't tax us out of existence. The holy hawks can't wage war. And Libertarian sympathizers like me can't make a lot of money and spend it however we want. I read 4 daily economic blogs, the WSJ, Forbes, and the Economist. Of course, I also read the NYT and Philly Inquirer. I don't watch any TV news whatsoever so as usual, you live up to your name Stupid.

[Fingon]

If you mean internationally, that could be one source of inflation as it will make imports more expensive (all else equal, if you assume we spend 15% of our income on imports, then for every 10% depreciation of the dollar that can lead to 1.5% additional inflation).

Isn't this a virtual certainty? Obama will most likely pursue a weak dollar policy, so his union donors can protect their manufacturing jobs. Its very likely that Obama will !@#$ our purchasing power just to keep the unions afloat. He has already shown extreme union favoritism in the GM bankruptcy.

[PastaJoe]

"Deficits don't matter" - Dick Cheney

[bills_fan]

Not seeing inflation any time real soon. I define inflation as "An increase in the money supply chasing goods and services." "Money supply" includes cash and credit (household and business). The "chasing" refers to the concept of velocity of money.

 

The supply of cash is certainly increasing, but at a much smaller rate than credit is being destroyed (both for households and businesses). On the other side the supply of available goods and services is net decreasing and will accelerate as the commercial real estate disaster unfolds.

 

Net economic activity (the "chasing") is way down and will continue to be down for a while. I really don't think inflation will be much of a problem over the next 12-18 months. Of course, you may see commodity spikes such as in oil, but that is not indicative of widespread inflation.

[John Adams]

Not seeing inflation any time real soon. I define inflation as "An increase in the money supply chasing goods and services." "Money supply" includes cash and credit (household and business). The "chasing" refers to the concept of velocity of money.

 

The supply of cash is certainly increasing, but at a much smaller rate than credit is being destroyed (both for households and businesses). On the other side the supply of available goods and services is net decreasing and will accelerate as the commercial real estate disaster unfolds.

 

Net economic activity (the "chasing") is way down and will continue to be down for a while. I really don't think inflation will be much of a problem over the next 12-18 months. Of course, you may see commodity spikes such as in oil, but that is not indicative of widespread inflation.

 

Point of interest for the uber-economists, of which I am not one. I saw the Chief [guy who projects long term trends] for Vanguard speak a few months ago. He gave a good argument for why so much of the money being pumped into the banking system has not affected inflation much. His main tenet was that most of the bank-bailout funds went into the banks to make them solvent/bolster their balance sheets to offset paper losses in things like property, and that that money actually wasn't flowing out into the cash economy. (He used a series of "M"s to describe the money supply...which is probably some common macroeconomic terminology but it was easy enough to understand.)

 

In any event, since that money wasn't actually making it out to the consumers or even businesses, the effect of the bailout on inflation is limited, for now. Moreover, he pointed out that even back in January, Bernake was buying back a lot of dollars to try to cool inflationary trends before they happen.

[Typical TBD Guy]

Where is all the money the fed is printing?

 

Being printed as we type! How else can Obama and the Democrats in control of Congress pay off their massive socialism projects? They don't want to raise taxes because they "promised" the American voter that it won't be necessary, and reneging on this promise would cost them seats in the 2010 election. And they surely won't trim the federal budget. And tax revenue is shrinking in proportion to the economy. And China is very impatiently waiting for their money back.

 

Who has it?

 

Currently the Federal Reserve and soon all those to whom the federal government is indebted.

 

Who's spending it?

 

Initially the federal government, of course, but then eventually everyone as the money trickles down throughout the economy.

 

How will it make prices of goods and services go up if no one's incomes are changing and more people are losing jobs?

 

Well for one thing, just look at the overwhelming historical evidence where a hyperinflationary process was completely unsympathetic to how much money Average Joe Schmoe had. Did it care in 1920's Germany? Post-WW2 China? Pre-Pinochet Revolution Chile? Zimbabwe?

 

But I also think you're forgetting the key point that some people ARE still improving in an economy undergoing inflation...namely, all those who are owed money from the government and being remunerated with unsound currency! Their increased activity in the pre-inflation market is, in fact, the very driving force for the resultant widespread rise in equilibrium prices that the rest of us schmucks must endure.