Skip to main content

View Diary: Shutdown ended, but the economic whacking it gave us is far from over. Where is the long view? (131 comments)

Comment Preferences

  •  Its impossible for the nation to be bankrupt. (3+ / 0-)

    We have our own sovereign currency (the US dollar) that we create by fiat.  The US Dollar does not exist in nature.  It is man-made.  We can't ever run out of dollars.

    MMT = Reality

    "The Earth is my country and Science my religion" Christiaan Huygens. Please join our Kos group "Money and Public Purpose". The gold standard ended on August 15, 1971, its time we start acting like it.

    by Auburn Parks on Thu Oct 17, 2013 at 02:28:25 PM PDT

    [ Parent ]

    •  Too bad Zimbabwe didn't figure that out. (0+ / 0-)

      They'd be the richest nation on the planet -- if only they kept printing more billion dollar notes.


      [ O Recommend   O Hide   O Bitch about this at the Help Desk ]

      by Pluto on Thu Oct 17, 2013 at 02:43:19 PM PDT

      [ Parent ]

      •  Comparing Zimbabwe to the USA tells us just (2+ / 0-)
        Recommended by:
        Pluto, Mr MadAsHell

        as little about reality as comparing the USA to Somalia when it comes to market regulations.  However, it does prove my point, that there is no such thing as running out of money or the nation going bankrupt as you described it.  

        Inflation is not simply an increase in the money supply.  Its the change over a period of time between 2 ratios.  The total amount of money SPENT / the total amount of goods and services for SALE.  This gets us the price level.  And then inflation is calculated by comparing the price level at two different points in time.  Here's a good example.

          Imagine an economy of two people that produces 10 apples a year.  And there are $10 in the economy.  The price level is 10 apples / $10.  Now lets say that productivity increases allow these two to produce 20 apples.  If the amount of money stays the same, we have deflation: 20 apples / $10.  If the money supply grows in an equal amount with productivity, inflation is zero: 20 apples / $20.  If the money supply grows faster than the production of goods and services, we get inflation: 20 apples / $25 dollars.  So creating money does not by itself guarantee inflation, its a ratio.  Furthermore, inflation doesn't care about whether its Govt making the money or the private sector making the money.  So if we tamp down on unstable private sector debt = money creation, and substitute the stability of Govt money, we will all be better off.  And inflation is not something to worry about solely because the money is coming from the Govt and not the private sector.  It doesn't matter where the money comes from.

        http://www.dailykos.com/...

        MMT = Reality

        "The Earth is my country and Science my religion" Christiaan Huygens. Please join our Kos group "Money and Public Purpose". The gold standard ended on August 15, 1971, its time we start acting like it.

        by Auburn Parks on Thu Oct 17, 2013 at 02:56:01 PM PDT

        [ Parent ]

        •  Good examples. (0+ / 0-)

          BTW, how does the private sector increase the nation's money supply via debt?

          Furthermore, inflation doesn't care about whether its Govt making the money or the private sector making the money.  So if we tamp down on unstable private sector debt = money creation....
          Or am I reading that wrong?


          [ O Recommend   O Hide   O Bitch about this at the Help Desk ]

          by Pluto on Thu Oct 17, 2013 at 03:05:52 PM PDT

          [ Parent ]

          •  Oh. When private banks extend loans, that expands (1+ / 0-)
            Recommended by:
            Pluto

            the money supply.  Here's a breakdown of the accounting:

            Person A takes out a loan from Bank B:
            Person A's deposit or checking account +1000 (asset)
            Person A's promissory note                   +1000 (liability)

            Bank B's liabilities (technically they owe you the amount in your deposit account)                            +1000 (liability)
            Bank B's loan contract is a financial asset to them
                                                                           +1000 (asset)

            When they do this, nobody else's account gets a corresponding debit.
            If I lent you my money.  You would be able to use my $1000 but I could not, until you started to pay me back.
            But when a bank makes a loan, there is nobody else that can't use their own funds.  Especially now with FDIC insurance and all the Govt guarantees in place through the Fed to ensure financial system stability.

            Now at this point, the bank "owes" reserves at the Fed (assuming they had no excess reserves before they made the loan).  The Fed requires the bank to have reserves equal to 10% (its technically much less but this is the 101 version) to their new loan, and they have up to 2 weeks to acquire the required reserves.  

            They can get the reserves from 3 places:
            1)  They can sell some of the stock of T-bonds and the Fed will give them reserves if the Fed buys the bond, otherwise if they sold the bond to someone else, the Fed would transfer the new T-bond owners reserves into Bank B's reserve account

            2)  They can borrow reserves on the interbank lending market.  This is the basis for the Federal Funds interest rate that the Fed sets.

            3)  They can borrow reserves from the Fed itself.  This is by far the least used process since the banks actually pay a penalty rate for using the so-called Fed window.

            In other words, banks extend credit, and that credit is accepted as money.  About 97% of all money exists as bank deposits (if you don't consider T-bonds money, which many of us do).  And the banks don't give that stuff away.  Either you have to deposit cash, transfer existing bank deposits from another or someone else's account, or you can have them make you some for a price (take on debt).  Banks don't ever give bank deposits away for free (unless they come from deficit spending, but thats another story.)

            MMT = Reality

            "The Earth is my country and Science my religion" Christiaan Huygens. Please join our Kos group "Money and Public Purpose". The gold standard ended on August 15, 1971, its time we start acting like it.

            by Auburn Parks on Thu Oct 17, 2013 at 03:24:48 PM PDT

            [ Parent ]

            •  Thanks . Are we touching on fractional lending (0+ / 0-)

              ...here?

              I like your articles. Very accessible. Hope to see more of you.


              [ O Recommend   O Hide   O Bitch about this at the Help Desk ]

              by Pluto on Thu Oct 17, 2013 at 03:52:37 PM PDT

              [ Parent ]

              •  Thank you (0+ / 0-)

                And in a sense, yes.  Although today's system is different than the traditional fractional reserve banking that is described in econ 101 textbooks.  But the principle is the same.

                MMT = Reality

                "The Earth is my country and Science my religion" Christiaan Huygens. Please join our Kos group "Money and Public Purpose". The gold standard ended on August 15, 1971, its time we start acting like it.

                by Auburn Parks on Thu Oct 17, 2013 at 04:36:09 PM PDT

                [ Parent ]

        •  Very good take. (0+ / 0-)

          Thanks for refreshing some of my economics classes (my major, years ago).

          The most violent element in society is ignorance.

          by Mr MadAsHell on Thu Oct 17, 2013 at 03:32:11 PM PDT

          [ Parent ]

          •  thanks (1+ / 0-)
            Recommended by:
            Mr MadAsHell

            "The Earth is my country and Science my religion" Christiaan Huygens. Please join our Kos group "Money and Public Purpose". The gold standard ended on August 15, 1971, its time we start acting like it.

            by Auburn Parks on Thu Oct 17, 2013 at 03:38:09 PM PDT

            [ Parent ]

Subscribe or Donate to support Daily Kos.

Click here for the mobile view of the site