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View Diary: Why deficits don't matter - the reality of government finance (116 comments)

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  •  The ancient Athenians printed their own (2+ / 0-)
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    katiec, psyched

    money and this enabled them to finance a boom in the building of warships, which in turn made them the dominant power in their part of the globe, which in turn enabled them to produce all of the things that we still marvel at today.

    This currency was actually in the form of silver coins made from silver mined in the city's own silver mine. Notice that the coinage was in silver when gold was used in other locales. But the Athenians did not have a gold mine so they produced silver coins as a medium of exchange. Their trading partners could have refused to accept silver and Athens would have been a small place with subsistence agriculture. But once everyone agreed that silver was okay, then the economy boomed. Later, when the silver supply fell, Athens fell on hard times.

    We have a dollar mine and it will never fail. Even if other nations refuse to accept our dollar, an impossibility in my view, we can make the things that we need here at home, which, by itself, will produce an internal boom.

    We can also use this dollar mine for good public purposes. For example, we can adapt Alaska’s policy, and give each American citizen a monthly stipend that will provide an economic floor for everyone. This floor, managed properly (and there are ways to do this), will make people's lives less volatile, it will tend to remove arguments about money from marriages, and it can be used to pay one parent to stay at home with their children without undergoing hardship. The preservation of marriage and the improving of early childhood are, by themselves, sufficient reasons for us to move to dollar mining today, literally today.

    Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

    by hestal on Sat Nov 10, 2012 at 05:03:37 AM PST

    [ Parent ]

    •  uhm (0+ / 0-)
      Even if other nations refuse to accept our dollar, an impossibility in my view
      I respectfully suggest that this is a dangerous assumption. At the moment we see that China is already working at reducing its dollar holdings. It has sold Treasuries and bought Japanese bonds. Japan in turn has been forced to buy dollars in response. Below the surface all is not as rosy.

      QEfinity will lead to problems ... not immediately, but eventually.

      Those who make peaceful revolution impossible will make violent revolution inevitable. - JFK

      by taonow on Sat Nov 10, 2012 at 05:21:06 AM PST

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      •  And what impact has China's change (1+ / 0-)
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        psyched

        in policy had on our currency? None at all.

        Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

        by hestal on Sat Nov 10, 2012 at 05:28:05 AM PST

        [ Parent ]

        •  Yet (0+ / 0-)

          Yet. Japan is now being pushed into printing high speed to weaken its currency. Things can continue for a while, but eventually reality will strike .. and when it does, it will be very very quick.

          Those who make peaceful revolution impossible will make violent revolution inevitable. - JFK

          by taonow on Sat Nov 10, 2012 at 07:00:20 AM PST

          [ Parent ]

      •  QE is not working anyway (2+ / 0-)
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        psyched, jellyyork

        In QE, the government creates money and buys bank assets, improving their balance sheets and, hopefully, encouraging them to create money in the real economy.   It's not working.  How about creating that same money, but using it to hire people in the real economy?  That's the basic policy recommendation I am making - create money and put it in a place that will create real demand in the real economy.  Why on Earth is it somehow okay to give money to bloated financial institutions which already control the majority of the world's capital, but not okay to give money to people who need it, and would actually use it?  It is nothing more than pure prejudice that makes the one perfectly acceptable, but the other a sin against economics.

        When inflation appears, it can be dealt with, should it be judged to be a greater threat than economic stagnation.  Given the massive debt overhang that the entire world suffers from at the moment, a fair bit of global inflation might not be too bad.  

        It's odd, though, how the threat of inflation is used to argue against doing anything to deal with unemployment or insufficient demand, whether there seems to be an actual threat of inflation or not.

        Currency devaluation can be a problem.  However, it can also have benefits.  The US trade deficit is rather severe, but a devaluation of the currency would likely help, rather than hurt, this.  US imports are largely manufactured goods that could just as easily be produced here given demand and industrial policy, and energy, which we shouldn't be buying to begin with.  Cut it all, and put Americans back to work building our own trinkets, and building our own clean energy infrastructure.

        `Under my command, every mission is a suicide mission.`

        by Zwackus on Sat Nov 10, 2012 at 06:36:33 AM PST

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        •  well (0+ / 0-)

          QE is actually stimulating the economy. The government spends money and raises that money from the financial markets buying selling bonds (since it is running a deficit). Normally this would cause interest rates to rise. BUT the Federal Reserve instead buys the bonds indirectly providing a willing buyer and thereby keeping rates low (and of course printing money to buy the bonds).

          The bonds the Fed buys do not fatten the banks (other than on some trading level). The Fed issues a bond, the bank buys the bond, the Fed buys it back (effectively). The Fed is essentially buying (indirectly) back most of the debt being issued by the government currently, so the net impact on bank balance sheets is minimal.

          Inflation is a monster slow to rouse, but very difficult to tame once unleashed. It will consume the pensions of the savers ... but of course that is the plan. Everyone will get SS, but it won't buy what you though it would buy.

          We are now in a currency devaluation war. Every country wants to devalue its currency. (Note: a large percentage of the trade deficit - up to 50% some months - is due to energy imports). Also for modern manufacturing to be cost competitive with low wage countries it has to be incredibly automated (few jobs). Some will definitely come back, but there is a limit.

          Those who make peaceful revolution impossible will make violent revolution inevitable. - JFK

          by taonow on Sat Nov 10, 2012 at 07:10:44 AM PST

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          •  The US gov could stimulate by getting money into (1+ / 0-)
            Recommended by:
            psyched

            the hands of folks directly.

            The buy back of bonds is a free give away to banks, and to the extent that banks might need liquidity, this could be  achieved through bottom up methods.

            •  My father preached this fifty years ago. (2+ / 0-)
              Recommended by:
              katiec, psyched

              He was a child of the Great Depression and he remembered well the effects of the public works projects. In fact, the whole generation of adults that I knew as a child believed in this approach.

              Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

              by hestal on Sat Nov 10, 2012 at 08:25:55 AM PST

              [ Parent ]

            •  We used to spend 5-6% of GDP (0+ / 0-)

              on infrastructure, last year we spent 1.3% about 195 billion, which is about 4 to 5 million jobs. in a 15 trillion dollar economy 5% is 750 billion. We could create an additional 10 to 13 million jobs.

              Without that New Deal policy every recession sees a jobless recovery, 1990, 2000, and the current great recession. From 1938 to 1988, recessions were shorter and shallower, only in 3 years did GDP go worse than negative 2%.

              FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

              by Roger Fox on Sat Nov 10, 2012 at 02:25:05 PM PST

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          •  Nonsense (1+ / 0-)
            Recommended by:
            psyched

            QE has had little or no stimulative effect on the economy. If you think it has had such an impact, then let's see some evidence. I don't see a shred of it.

            Also, you don't have to worry about the Chinese getting out of dollars until they decide they don't want to trade with us  any longer. But hey, if they do that, we'll just have to make things here, ourselves. Maybe Detroit will come back!

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