Skip to main content

View Diary: NYT: It's Krugman Vs. Reinhart & Rogoff, Who Trivialize Their Incompetence And Attack “Left” (246 comments)

Comment Preferences

  •  OK, let's agree that increasing the public debt (61+ / 0-)

    is a bad idea at any time. That leads to the question why a country that issues its own currency even has a debt. Why are we borrowing our own dollars back at a premium from people who, obviously, have no other use for them and haven't thought to return them where they came from?

    Why are we rewarding hoarding? If people were hoarding tin cans or derelict cars, would we reward that, as well? That the latter aren't useful, is not an excuse. Indeed, useful things being hoarded is worse than useless things, because people are being deprived of the useful stuff.
    The answer, I suggest, is simply TRADITION. People have been paying bankers to borrow paper certificates of debt ever since the Dutch decided to hoard the gold stolen from the Americas and issue notes instead.
    It's a clever way to perpetrate theft.

    The U.S. used to have gold stored in vaults to justify the same scam. When Nixon severed the bands of gold, the scam should have been stopped. But, the fact that the Congress was "managing" the currency by laundering it through the Federal Reserve Bank to give other bankers a first cut and let them lend it back to the Treasury at a premium before it is spent on public goods and services got overlooked because that's how it's always been done. TRADITION.
    We should have been alerted by the fact that one of the main objections to Islam is that the religion forbids collecting interest on money over and above what it costs to do the accounting. We should also have been alerted when that charge sort of disappeared and the argument shifted to China "manipulating its currency."
    I've always wondered how come China shouldn't be able to handle (that's what manipulate means) its own currency. Now we know the reason. The U.S. and the IMF is wanting to manipulate them.

    Bottom line. The public debt is important because it tells us that the economy is being badly managed. It's sort of like the number of inches in a person's waistline telling us that he's eating badly.

    We organize governments to deliver services and prevent abuse.

    by hannah on Fri Apr 26, 2013 at 02:13:12 AM PDT

    •  Not Sure About Tradition (20+ / 0-)

      But definitely malice.

      "I'll believe that corporations are people when I see Rick Perry execute one."

      by bink on Fri Apr 26, 2013 at 02:14:47 AM PDT

      [ Parent ]

    •  So (6+ / 0-)

      you are an extreme Reinhart/Rogoff-arian? If "increasing the public debt is a bad idea at any time", their claim that a 90% debt to GDP ratio causes a drop in economic growth does not go nearly far enough. If "[t]he public debt is important because it tells us that the economy is being badly managed", then you think the ratio should be close to 0%. Any chance you could publish your views in an academic journal? I've heard the austerians are looking new scholarly justification for their destruction of the world economy.

      •  hannah is not objecting to deficits (32+ / 0-)

        she is objecting to the creation of fiat money being encumbered by debt. These are very different things with very different implications.

        •  Do tell! (1+ / 0-)
          Recommended by:
          No one gets out alive

          How does one claim "increasing the public debt is a bad idea at any time" without "objecting to deficits"? This is a perverse misreading of MMT.  Here's Bill Mitchell on the subject:

          In MMT, we see public debt as private wealth and the interest payments as private income. The outstanding public debt is really just an expression of the accumulated budget deficits that have been run in the past. These budget deficits have added financial assets to the private sector, providing the demand for goods and services that have allowed us to maintain income growth. And that income growth has allowed us to save and accumulate financial assets at a far greater rate than we would have been able to without the deficits.

          The only issues a progressive person might have with public debt would be the equity considerations of who owns the debt and whether there an equitable provision of private wealth coming from the deficits. There is a debate to be had about that, but there is no reason to obsess over the level of outstanding public debt. The government can always honor its debt; it can never go bankrupt. There’s no question that the debt obligations will be met. There’s no risk. What’s more, this debt provides firms, households, and others in the private sector a vehicle to park their saved wealth in a risk-free form.
          ...
          None of this is to say that budget deficits don’t matter at all. The fundamental point that the original developers of MMT would make—myself or Randall Wray or Warren Mosler— is that the risk of budget deficits is not insolvency but inflation. In saying that, however, we would also stress that inflation is the risk of any kind of overspending, whether investment, consumption, export, or government spending. Any component of aggregate demand could push the economy to that point where we get inflation. Excessive government spending is not always to blame.

          In sum, we’re quite categorical that we believe that budget deficits can be excessive and can be deficient as well. Deficits can be too large, just as they can be too small, and the aim of government is to make sure that they’re just right to employ all available productive capacity.

          •  Debt is NOT the same a deficit (0+ / 0-)

            If you understand the difference, you see Mitchell and hannah are in substantial agreement. MMT does not describe the debt as a necessary constituent of fiscal policy - in my understanding of the MMT formulation, there is functionally no difference between issuing non interest bearing notes and interest bearing notes, except the latter require debt service. Currency creation only requires bond creation because that's the way the law is written. It's welfare for the 1%.

    •  but we don't agree (7+ / 0-)

      I see no reason why a government shouldn't be able to sell bonds; I don't see why it inherently represents bad economic management, even for a "country that issues its own currency."

      The public debt is important because it tells us that the economy is being badly managed. It's sort of like the number of inches in a person's waistline telling us that he's eating badly.
      Mmmm. Do you think the ideal waistline measurement is zero?

      Election protection: there's an app for that! -- and a toll-free hotline: 866-OUR-VOTE
      Better Know Your Voting System with the Verifier!

      by HudsonValleyMark on Fri Apr 26, 2013 at 05:17:28 AM PDT

      [ Parent ]

      •  I actually think it's a useful policy tool. (6+ / 0-)

        From an indirect economic standpoint, you always want to keep the people you've loaned money to afloat, so that they can pay you back as much as possible.  Unless, of course, you can palm off that debt on some unsuspecting type, as we saw in the recent derivatives fiasco.

      •  There is no reason (7+ / 0-)

        for "local" governments and agencies not to issue bonds . . . the "household" model works for them.  Borrow now against future income (taxes) for an immediate and ongoing "public good".  And if that doesn't work out then default and go bankrupt.

        Not so for the currency issuing national government, however.  In that case there is no reason for the government to issue bonds, since it can simply issue currency and accomplish the same public good without paying "interest" to anyone (of course that "interest" is the bonds real purpose, which is to be a nationally mandated transfer tax benefiting the wealthy).  Of course if currency printing gets out of hand the resulting "inflation" devalues the currency . . . but no more than uncontrolled borrowing does, since "creating" debt is just another way of creating currency (it's the side benefit to the wealthy that is the problem).

        Fake Left, Drive Right . . . not my idea of a Democrat . . .

        by Deward Hastings on Fri Apr 26, 2013 at 06:10:42 AM PDT

        [ Parent ]

      •  Why not just issue the currency you need (9+ / 0-)

        instead of selling bonds to banks which charge you interest to lend you the currency you could have created interest-free in the first place?

        So you end up where 1/4 to 1/3 of your debt is interest payments (iirc). And will grow from here.

        The long-standing rationale is that politicians will play political games with the currency; Bankers are indifferent to politics.

        Well, that's clearly risible.

        Further, politicians can be directly checked by the voters; whereas Private Banks can shit on anyone they want as they have no checks on them. And now, under our modern Two- or even Three-Tiered system of Law, everyone knows that Bankers have no hint of checks. Especially the Bankers.


        Actual Democrats is the surest, quickest. route to More Democrats

        by Jim P on Fri Apr 26, 2013 at 08:27:29 AM PDT

        [ Parent ]

        •  Bingo ! / nm (3+ / 0-)

          The "extreme wing" of the Democratic Party is the wing that is hell-bent on protecting the banks and credit card companies. ~ Kos

          by ozsea1 on Fri Apr 26, 2013 at 12:16:45 PM PDT

          [ Parent ]

        •  For different reasons... (1+ / 0-)
          Recommended by:
          Words In Action

          You issue debt if there is a public policy purpose for the private sector to hold debt instead of currency.

          Notice in that sentence that there is nothing about issuing debt in order to deficit spend.  It is about whether there is a public purpose to an extremely safe interest bearing financial instrument issued by the currency issuing government.  Under that policy it is possible to make an argument that there are situation where the government should issue debt instruments even in the event of a surplus.

          A couple possible ideas (might not be good ones):
          1) Maybe we want retirees to have a safe investment and that is a good way to do it.
          2) A method for control of long term interest rates.

          •  Currency is debt. Every dollar is a (0+ / 0-)

            certified IOU. Certified because socially recognized. For comparison think of marriage certificates.

            We organize governments to deliver services and prevent abuse.

            by hannah on Sat Apr 27, 2013 at 02:29:38 AM PDT

            [ Parent ]

            •  Context please... (0+ / 0-)

              In particular context, I am using debt interchangeably with bonds.  Perhaps imprecise, but the point is that bonds have a role in public policy that has nothing to do with financing the federal government.

    •  Fed = Rentier (4+ / 0-)

      First among too many. No free lunches? We have one right at the root of our monetary system.

      Cheaters are not bound by tradition or rules. People tend to respect tradition. Tradition might just be the reason.

    •  I do not agree that increasing the public debt at (7+ / 0-)

      any time is a bad idea, but the rest of your comment is just fine, especially your "bottom line."

      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 Fri Apr 26, 2013 at 05:35:45 AM PDT

      [ Parent ]

      •  hannah's (1+ / 0-)
        Recommended by:
        MKinTN

        "bottom line" is an extreme expression of the austerity program. It claims that  public debt is always bad and an indication of a poorly run economy. Even Reinhart & Rogoff aren't that bad (they find acceptable anything below a certain debt to GDP ratio, but anything higher is bad for growth). How can you possibly agree with hannah's "bottom line"?

        •  I thought that she was saying that the waistline (5+ / 0-)

          should be at zero. In other words we should not borrow at all, but just print the money and spend it to help people.

          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 Fri Apr 26, 2013 at 06:18:48 AM PDT

          [ Parent ]

        •  She's saying "skip the borrowing part" (13+ / 0-)

          just issue, as a sovereign nation, what you need. (She doesn't say, but implicit in the notion, is that you can issue or withdraw currency depending on what circumstances require.)

          What is the debt then? Zero.


          Actual Democrats is the surest, quickest. route to More Democrats

          by Jim P on Fri Apr 26, 2013 at 08:30:48 AM PDT

          [ Parent ]

          •  Interesting concept (4+ / 0-)

            Wheahter spending thru bond sales or printing more money any inflationary effect might be the same at the end of the day?

            .................expect us......................... 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 Fri Apr 26, 2013 at 08:32:59 AM PDT

            [ Parent ]

            •  And inflation gets too high, people yell at (8+ / 0-)

              their Congress, and the currency gets withdrawn, and inflation goes down.

              Don't have the exact figure handy, but since we handed over issuance to the Fed in 1913, inflation has been something on the order of 2,100%. And nobody gets to pressure the Fed.

              iirc, the Populists of the 1890s wanted a State Bank which would issue loans at low, and non-compounding, interest. To cover the bad loans. So there's another route to getting the currency into circulation.


              Actual Democrats is the surest, quickest. route to More Democrats

              by Jim P on Fri Apr 26, 2013 at 08:55:27 AM PDT

              [ Parent ]

            •  Bond sales could be more inflationary... (1+ / 0-)
              Recommended by:
              Bluesee

              All other things being equal.  First, they pay interest.  Second, they get leveraged big time.

              Both bonds and currency are issued by the federal government.  There are two differences.
              1) Bonds pay interest from the government currency does not.
              2) You can pay your taxes directly with currency.  The government does not accept bonds directly for as payment of taxes.

          •  A Good Movie (0+ / 0-)

            "The Secret of Oz".  It lays out some very fundamental (one might say radical) ideas, and asks 'why not'.

          •  So (0+ / 0-)

            the hannah's claim is that deficits should always be financed by printing money and never by issuing bonds? That's a pretty astounding claim. Besides hannah's say-so, is there any evidence for this claim?

            •  No. There ARE no deficits to finance. (6+ / 0-)

              The currency is printed as per what is authorized to spend, end of story.

              If the authorizations prove to be inflationary to spend, then the politicians either have to justify the expense or cut back. There wouldn't be any "lets spend a trillion on a world-wide war machine and go to Bankers to fund it." There'd be, "well we can't afford this world-wide war machine because the people won't pay for it because it's bankrupting them."

              The Bank of Australia did this, and had a fine economy for decades, until they moved currency-creation into Banker's hands about 20 years ago. Now they're fucked like the rest of the world.

              North Dakota has had a State Bank for over a century, and routinely shows a profit; while North Dakota itself does not gather debt to service.

              There have been periods in US history where we did this, and things were fine until we moved back to private Central Banks. Inflation between the nation's founding ran at a little over 1%. Since the Fed's founding in 1913, over 2000%. Why? Interest on debt.

              There are other instances, actual historical instances, and they've all worked. Don't have time to find them for you now.

              Apart from that you just need to think it through in my opinion. 1/3 or so of today's deficit is purely service on debt.


              Actual Democrats is the surest, quickest. route to More Democrats

              by Jim P on Fri Apr 26, 2013 at 11:46:30 AM PDT

              [ Parent ]

              •  If a government (0+ / 0-)

                spends more than it collects in in tax revenues in a year, that difference is a deficit. Printing money to make up that difference is financing that deficit by issuing money. If you and hannah want to change the meaning of terms so that "deficits" no longer means what it means to everyone else, that's your prerogative.

                Does the government even need to collect taxes in your theory? Is this your version of MMT, or are you describing some other economic theory?

                •  A Law's passing, by it's very existence, is (0+ / 0-)

                  the command to make currency available. The moment the Executive signs a Bill into Law, the only delay is in the Executive's Treasury, um, executing the Law.

                  Whether the currency is from that amount collected in taxes and other revenues, or that part which needs to be newly issued, there is no deficit. Except maybe a transient one for the time it takes the Law to be signed and the Treasurer to get her Office to actually print what's required.

                  Erase "deficit" in this model. It doesn't exist in any meaningful way, beyond the time needed to print. There's no Bonds to sell to Bankers so as to finance the Laws.

                  Although you can meaningfully speak about a "shortfall" you can no longer meaningfully speak about "deficit." And you're playing a whole other ball game with "shortfall" than you are with "deficit." You're having entirely different political conversations, and actions. You've cut the Bankers out of the loop, and instead Congress is forced to take responsibility for their actions, whether inflationary or not sufficient to counter down times.

                  There's no eternally-increasing interest charges affect the national budget. Gone.

                  You replace Banker's magic with Government magic, except there's no interest charges.

                  I don't know that Hannah and I share the same understanding of the idea, but it's not so much a theory as 2 + 2 = 4. And it's an idea which long long precedes any economic theory of the last 100+ years.


                  Actual Democrats is the surest, quickest. route to More Democrats

                  by Jim P on Sat Apr 27, 2013 at 10:34:13 AM PDT

                  [ Parent ]

            •  Hannah is not claiming anything. (4+ / 0-)
              Recommended by:
              hannah, Bluesee, dadoodaman, TheMomCat

              She's expressing an example using Modern Money Theory (also known as chartalism).  MMT has many proponents including James K. Galbraith.

              I'm no economist, just a humble biz grad, but MMT makes perfect sense to me. It explains how economies work when you have governments such as ours that issue fiat currencies as opposed to currencies dependent on the amount of a commodity, such as gold or silver, for which it can be redeemed.  The US government has been issuing fiat currency since Richard Nixon, but we have yet to change our central banking system to correspond.

              "Some folks rob you with a six-gun, some rob you with a fountain pen." - Woody Guthrie

              by Involuntary Exile on Fri Apr 26, 2013 at 12:10:32 PM PDT

              [ Parent ]

              •  MMT (1+ / 0-)
                Recommended by:
                Bluesee

                accepts that countries will run deficits, issue bonds, etc. See here. What is being expressed here is something completely different. Apparently, hannah and Jim P believe there is an obligation for governments to finance their spending above what they take in from tax revenues only by issuing new currency. The proponents of MMT make no such claim. It is one thing to say that a nation that uses fiat currency can never be insolvent because it can always issue more money. It is quite another to say that that same nation should never run a budget deficit because it should always issue more money to finance its expenditures (above what it takes in from tax revenues).  

    •  Even if one argues we're not "rewarding hoarding" (3+ / 0-)

      ...(which I would not do) we're absolutely, unarguably NOT preventing, protecting against, or even dis-incenting hoarding. The less one has the better hoarding is as a reflexive response to scarcity or fear of depleted resources. But there's a point of diminishing returns and as a society, the economy requires resources to circulate for sustainability.  

      Very good insight, hannah!

    •  Very interesting points. Especially... (13+ / 0-)
      We should have been alerted by the fact that one of the main objections to Islam is that the religion forbids collecting interest on money over and above what it costs to do the accounting.
      Most people do not realize that Christianity forbade charging interest for loans for almost 15 centuries before King Henry VIII made it legal (along with a few other previously considered immoral activities).

      Somehow, it has not only become morally acceptable for Christians to charge interest on loans over the last five hundred years but it seems almost holy from the sounds of the Christian right today.  Somehow, the poor are now evil leeches and the rich are benevolent job creators supporting the weight of society on their mighty shoulders.  

      Jesus would be turning over in his grave if he had one.

      "Perhaps the sentiments contained in the following pages, are not YET sufficiently fashionable to procure them general favour..."

      by Buckeye Nut Schell on Fri Apr 26, 2013 at 07:28:38 AM PDT

      [ Parent ]

      •  The side effects of that policy (6+ / 0-)

        were also 'interesting'.

        Because 'christians' were forbidden from charging interest, they could not go into banking without going broke.  So they went to the Jews who could and did.  And this created the perception that Jews were money-grubbing thieves who would do anything for a buck, and built on the anti-semitism that plagued history for centuries and culminated in the Holocaust.

        Vicious circle.

        I am not religious, and did NOT say I enjoyed sects.

        by trumpeter on Fri Apr 26, 2013 at 08:45:24 AM PDT

        [ Parent ]

        •  Jews were prohibited from lending at interest (3+ / 0-)
          Recommended by:
          trumpeter, TheMomCat, devis1

          to other Jews but were permitted to charge Gentiles interest.

          Deuteronomy 23:20-21

          כ  לֹא-תַשִּׁיךְ לְאָחִיךָ, נֶשֶׁךְ כֶּסֶף נֶשֶׁךְ אֹכֶל:  נֶשֶׁךְ, כָּל-דָּבָר אֲשֶׁר יִשָּׁךְ.    20 Thou shalt not lend upon interest to thy brother: interest of money, interest of victuals, interest of any thing that is lent upon interest.

          21.   כא  לַנָּכְרִי תַשִּׁיךְ, וּלְאָחִיךָ לֹא תַשִּׁיךְ--לְמַעַן יְבָרֶכְךָ יְהוָה אֱלֹהֶיךָ, בְּכֹל מִשְׁלַח יָדֶךָ, עַל-הָאָרֶץ, אֲשֶׁר-אַתָּה בָא-שָׁמָּה לְרִשְׁתָּהּ.  
              Unto a foreigner thou mayest lend upon interest; but unto thy brother thou shalt not lend upon interest; that the LORD thy God may bless thee in all that thou puttest thy hand unto, in the land whither thou goest in to possess it.

          You can bet that scripturally codified bit of business discrimination was bound to result in ill feelings.

          "Some folks rob you with a six-gun, some rob you with a fountain pen." - Woody Guthrie

          by Involuntary Exile on Fri Apr 26, 2013 at 12:49:06 PM PDT

          [ Parent ]

    •  i think your comment is spot on in most ways (4+ / 0-)

      as usual, but the gold standard was a fiction to begin with.

      nixon made have removed us from it for the most evil of reasons, but the standard itself is irrelevant to past and present economic problems.

      the monetary system is itself a problem.  i am increasingly convinced that it is THE PROBLEM.

      i have only begun to understand the monetary system in the period since 2008 as i was motivated to understand it in the context of the bank bailout.

      if every American understood the monetary system, we would understand how we are being enslaved.

    •  Virtual tip etc etc (4+ / 0-)

      I've listened to L. Randall Wray on Hartmann's radio show, discussing how double-entry bookeeping can explain why public debt - in a country's sovereign currency - is balanced by private liability.

      Fascinating stuff, and I wish my break wasn't over with. I must get "back to the oars."

      http://en.wikipedia.org/...

      The "extreme wing" of the Democratic Party is the wing that is hell-bent on protecting the banks and credit card companies. ~ Kos

      by ozsea1 on Fri Apr 26, 2013 at 10:22:02 AM PDT

      [ Parent ]

    •  Your thesis is oxymoronic. (1+ / 0-)
      Recommended by:
      Johnny Nucleo

      Money is government debt. Period.

      If you can't increase it, your economy cannot grow.

      •  More like a recognition of obligation. The (0+ / 0-)

        alternative to issuing certificates of obligation is to just requisition goods and services by dint of force. In colonial days citizens were taxed to provide a number of days of labor annually. Registration for a military draft persists. Issuing certificates of obligation is more egalitarian.

        We organize governments to deliver services and prevent abuse.

        by hannah on Sat Apr 27, 2013 at 02:44:04 AM PDT

        [ Parent ]

Subscribe or Donate to support Daily Kos.

  • Recommended (151)
  • Community (76)
  • Bernie Sanders (50)
  • Elections (42)
  • 2016 (41)
  • Environment (34)
  • Hillary Clinton (33)
  • Climate Change (33)
  • Culture (32)
  • Civil Rights (29)
  • Republicans (28)
  • Science (28)
  • Media (27)
  • Barack Obama (24)
  • Law (23)
  • Labor (23)
  • Spam (21)
  • Education (19)
  • Trans-Pacific Partnership (19)
  • International (18)
  • Click here for the mobile view of the site