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I have got react to this post and the comments thereto.

Polls show that people want the government to address the jobs problem by stimulus and creating new jobs.  Somehow, the people here at Kos want to morph that into popular support for extending unemployment benefits.  That doesn't actually work.

There is also great concern over the budget deficits and the growing debt.  These two things (deficit and debt) are linked at the hip because all the politicians continue to lie about the real economics and how fiat money actually works.  The party that tells the truth will probably come out way ahead when all is said and done.

But back to the unemployment stuff first.  Unemployment payouts increase wages or prevent wages from falling.  That is because people are able to survive without taking jobs that pay next to nothing.  But unemployment benefits do little to create NEW jobs.  The fact that this money is in the economy and being spent will prevent more job losses but it is not a creator of new jobs.  If new jobs are wanted then government must spend and stimulate.  Actually, it is not necessary for government to stimulate.   Government can simply PROVIDE jobs with infrastructure creation and maintenance or by increasing education or other public services.

Where we run into the problems is the brain dead notion that this stimulus spending MUST increase the real debt.  And this is the lie that I have mentioned above.  The truth is that government spends money into existence and THEN worries about any devaluation of the currency or inflation that might be caused by the spending.  Simply stated, if the spending does not result in inflation then there is no reason to sell T-Bills or to tax the money back out of the economy.  We are left with the problem of controlling the inflation as opposed to fighting a depression.  Controlling the inflation is a much, much simpler job than pumping up a bubble.

Once this mental block about "get the money before you can spend it" is overcome, then macro economics, monetary and fiscal policy  become a pretty simple matter.  How do we get past this mental block?  How do we force the representatives to tell the truth?

Brad Delong tells us that we need not even overcome the block for stimulus spending to make economic sense at present.  So long as interest rates keep heading south then the time for long borrowing couldn't be better.  A debt at 3% now will be a good bet ff inflation runs at 5% over the next ten years and the economy expands.

But more to the point: Dean Baker, a very much respected economist, tells us that the Fed can essentially monetize a lot of the spending and prevent the actual debt owed to the public from rising.

"There is a simple way to avoid a sharp rise in the interest burden associated with a higher debt. The Federal Reserve Board can buy and hold the debt that is currently being issued by the Treasury to finance the deficit. The logic of this is straightforward. If the Fed holds the debt, then the interest on the debt is paid to the Fed. The Fed then returns the interest to the Treasury each year, meaning the net cost to the government is zero.

This is not slight of hand. The point is that the economy has a huge amount of idle resources in the form of unemployed workers and excess capacity. In this situation, the increased demand created by government spending does not have to come at the expense of existing demand. The economy can simply expand to fill the additional demand created by larger deficits. While that may not be true in five or ten years, assuming the economy is again near full employment, right now deficits need not lead to either higher interest rates or higher inflation.

In fact, the financial markets and the "bond market vigilantes" should even support the decision to have the Fed purchase and hold the government debt being issued now to finance the deficit. This practice will lessen the future interest burden on the Treasury. In fact, interest should be seen as an entitlement like Social Security and Medicare since it is paid each year without new authorization by Congress. If the deficit hawks had any integrity they would be insisting that we should require the Fed to hold the government debt issued during this downturn. It is a surefire way to substantially reduce entitlement spending."

Originally posted to TheTrucker on Thu Jun 17, 2010 at 07:51 PM PDT.

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Comment Preferences

  •  Tip Jar (11+ / 0-)

    "I know no safe depository for the ultimate power of society but the people themselves" -- Jefferson

    by TheTrucker on Thu Jun 17, 2010 at 07:51:30 PM PDT

  •  Corporations are hording cash (6+ / 0-)

    Long-term interest rates are so low because there's more money than demand. Big U.S. based corps hold more than a trillion dollars in cash.

    And then there's China, which has huge surpluses. Today the Chinese govt. allowed large wage increases to struggling workers....presumably to boost demand not help "small people".

    look for my DK Greenroots diary series Thursday evening. "It's the planet, stupid."

    by FishOutofWater on Thu Jun 17, 2010 at 08:01:57 PM PDT

  •  Um, the link is a climate change diary? nt (0+ / 0-)

    "All people are born alike - except Republicans and Democrats" - Groucho Marx

    by GrumpyOldGeek on Thu Jun 17, 2010 at 08:05:05 PM PDT

  •  I would suggest that the Treasury create a (2+ / 0-)
    Recommended by:
    papicek, Betty Pinson

    special class of T-Bill which would allow people a better rate of return if the T-Bill is used to support retirement but I am afraid if they did that and it was successful..the GOP would refuse to honor them when they came due.  They seemed bound and determined to renege on any promises made to the elderly.  Corporations, they will fight to the death about but protecting the assets of the average American, not so much.

    "When fascism comes to America, it'll be wrapped in a flag and carrying a cross." Sinclair Lewis

    by lakehillsliberal on Thu Jun 17, 2010 at 08:11:10 PM PDT

  •  Great diary. My own case is a prime example (3+ / 0-)
    Recommended by:
    dinotrac, SciVo, worldlotus

    I'm a university professor. If I teach 3 courses a semester (usually about 300 students), I bring home about 2000 a month (in a very expensive city). I was laid off this Spring and I now earn 1950 a month to do nothing. How does this make any sense at all? Especially when I would prefer to keep working.

    I guess my question for you is, how can you dumb this down even more to make it palatable and clear to "everyday" people. And to turn it into soundbites and memes that are easy for people to digest. Because without that, we won't have a chance.

    Honestly, I wish we could take all of this brain power and use it to actually do something. We have amazing people that we are not taking advantage of (I am thinking about people like Lakoff). Or there is not a loud enough chorus. I dunno. Maybe it's hopeless. I am losing my benefits next week if something isn't done and I have a job (tentatively) in 3 weeks. I just need those three weeks to get from here to there, but without the UI ... I don't know what I will do.

    •  The economics were different for me, but (0+ / 0-)

      the point remains.

      When I was still collecting unemployment (not collecting now, now working. Ouch.), it came to about a quarter of my take-home pay when working.  Enough to help, enough to make a difference, but not enough to keep us from running through cash and facing foreclosure, etc.

      I appreciated the lifeline, to be sure, but...

      it wasn't a job.

      People need income, but people also need to work, to use their ingenuity, to contribute to the whole.

      We have to feed our bodies and we have to feed our souls.
      Unemployment benefits do one without the other.

      We want to work, we need to work, and the country would be so much stronger and healthier if we were back on the job.

      How can it be that we don't stay at the top of the nation's priority list?

      Free speech? Yeah, I've heard of that. Have you?

      by dinotrac on Sat Jun 19, 2010 at 04:46:05 AM PDT

      [ Parent ]

  •  Interesting diary (1+ / 0-)
    Recommended by:

    I don't know enough about economics to say one way or the other. But I will say that the 'deficits hawk were wrong last year about inflation and they are still wrong this year. I just refinanced again this week @ 4.625% 30yr fixed.

    The deficit hawks keep warning us about 'Zimbabwe style inflation'. Instead we are getting almost no inflation, and RECORD BREAKING low interest rates (ie. no expectation of future inflation). Bond Vigilantes my a$$. More like Bond Whores at the moment. They'll go for anything the government puts out.

  •  Thank you, that needs to be said more often. n/t (0+ / 0-)

    More action, less meta. The time is now!

    by SciVo on Sat Jun 19, 2010 at 04:12:52 AM PDT

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