pjmeli

 
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  • in reply to: Debt Rattle January 25 2017 #32393
    pjmeli
    Participant

    Chris M

    “…fractional reserve banking”

    At the risk of being argumentative this particular zombie must be slayed.
    Fractional Reserve Banking™ doesn’t exist and never has. Every central bank in the World has gone on record that loans create deposits. Banks create money out of thin air when they make loans. Fractional reserve banking is a Rube Goldberg mathematical exercise untethered from the way things work in the real world. Like economics.

    “I don’t think all the government debt was purchased with earnings.”

    Not sure how ‘earnings’ got into this. Some government debt is held by the Fed though, maybe about $5T. The government owes $ to itself, while unconstrained in it’s ability to create $. I say unconstrained but the one constraint is that $ can’t buy something that doesn’t exist.

    Use of the term National Debt™ to describe our savings is Orwellian. Unfortunately, almost all of the $ in existence (not including bonds) are owed to the banking system. So what do we have in our pension funds?

    “…supply siders always talked about supply creating its own demand. That’s true…”

    Not true. What a business pays $1 to produce costs about $3 to buy, meaning business creates a fraction of the demand necessary to consume its own production. The additional income required comes from other sources, either as a result of federal spending or through private borrowing.

    For example in 2015 businesses invested approx. $3T, yet Consumption was some $10T. The Federal Government spent about $4T. Private debt increased by about $1.5T.

    Supply-siders will not learn what is in their best interests not to learn (paraphrasing Upton Sinclair). Starving the system keeps workers down, leaving business with the power, which is more important to them than money.

    in reply to: Debt Rattle January 25 2017 #32386
    pjmeli
    Participant

    Chris M.

    “By Whom. How was it derived?”

    By Congress. From simple accounting.

    Dollars are created by Congress when it passes spending bills and the President signs off on them. By accounting this is recorded as a liability (debit or debt) on the government side of the transaction when Treasury writes a check (marks up bank accounts) and an asset (credit or deposit) on the non-government side.

    It is by this simple rule of accounting that all money is debt…debt by definition. What is debt for one is (must be by accounting) an asset for another.

    All currencies in the World is fiat – from nothing. Money has no intrinsic value…it is a measure of claims on goods and services one has acquired.

    Where do you think the $ in your bank account came from?

    in reply to: Debt Rattle January 25 2017 #32373
    pjmeli
    Participant

    “We are at $20 trillion of debt.” – Stockman

    Translation…”private savings are at $20 trillion”. The opposite side of the double-entry accounting.

    in reply to: Debt Rattle November 18 2016 #31394
    pjmeli
    Participant

    Re Dr. Diablo

    Well said

    “…it should be remembered that consumption drives roughly 2/3rds of the economy…”

    Does it?

    Y = G + I + C + NX

    Last year GDP (Y) was about $18T, G + I + NX totaled $6.5T leaving $11.5T for consumption. This must be where the 2/3rds number comes from. Except…

    Consumption is driven by G and I, not vice-versa. C is a dependent variable, dependent on G and I.

    G + I is top-line spending that leads to more spending…people have to pay their bills and they buy stuff …if there’s anything left over. That spending generates more income that begats more income and so on until the flow stops… about $11.5T in consumption later, killed by taxes and savings.

    Hard to imagine much consumption happening if we took away that $6.5T in income. On the bright side we wouldn’t have much tax liability either.

    in reply to: Debt Rattle November 11 2016 #31316
    pjmeli
    Participant

    “If a country wants to “boom,” how can it do that without more and more debt?”

    Umm, create money directly by marking up bank accounts without issuing corresponding debt? Pretty straightforward. There is nothing stopping a sovereign from doing so beyond politics and mythology.

    However, all currency is technically “debt” because in double-entry accounting one side of every transaction is a liability (a debit).

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