[GJM] Do Government Deficits Matter?

[robert searle]

Dear All,


        There is a far more advanced way of doing
things.  It is called TRANSFINANCIAL ECONOMICS.



       
http://kheper.net/essays/Transfinancial_Economics.html


Regards,

Robert Searle
--- "W. Curtiss Priest" <bmslib at mit.edu> wrote:

> William F Hummel wrote (on Understanding Money):
> > 
> > Steve,
> > 
> > You placed quotation marks around "debt burden"
> which suggests that
> > you question whether government debt is in fact a
> burden.  I fully
> > agree.
> ...
> 
> Dear Bill,
> 
> I am sure you realize that your reply glosses over
> many
> issues.  Some:
> 
> 	1.  Federal Debt/GDP is dwarfed by the massive
> 	level of Federal Liabilities and Obligations
> 
> 	Some have put the total sum up around $60 trillion,
> 	or 6 times GDP
> 
> 	2.  You address the economy from a static model. 
> So,
> 	for example, I would say that the boom after WWII
> 	occured "despite" the high debt/GDP ratio.  I
> thumbed
> 	a 1952 issue of the Saturday Evening Post.  Not
> only
> 	was it clear that deficit spending during the war
> 	opened many new markets based on technologies and
> an
> 	expanded world presence, but, "because we won" --
> there
> 	was a "can do" euphoria that pervades that
> magazine.
> 
> 	How does the static model embody these forces?
> 
> 	In describing the race between the needs of the
> 	retiring baby boomers and productivity, you hint
> 	at a more dynamic model.
> 
> 	3.  And, this current US GDP?  Recall the well
> known
> 	microeconomics of when a factory "comes to town."
> 
> 	The local economy flourishes at a great pace as
> 	the dollars produced by wages become a seven times
> 	multiplier when the money goes into services, etc.,
> 	and comes around again and again.
> 
> 	Now, take the way in which trillions of dollars
> have
> 	"come to town" by the leveraging of borrowing as
> 	home equity.  While the actual borrowing against
> 	(supposed) increased "home values" has only been
> 	less than a trillion, look to the multiplier!  All
> 	those expansions needed everything from grass to
> 	washing machines.  Commodity prices have gone
> 	through the roof on everything from lumber to
> copper.
> 
> 	So, when you look at the GDP denominator, you have
> 	a very precarious number.  And, straight Federal
> 	borrowing (per comment #1) and in contrast to
> 	the multiplied effect of consumer borrowing makes
> 	the actual federal debt less important.  Yes,
> bombing
> 	and rebuilding Iraq has a multiplier as defense
> 	contractors also produce hires, but, as the work
> 	occurs "over there" -- the ripple effect is far
> 	less.  And, today, the military is no longer an
> 	innovative force in the economy.  The Arpa/Darpa
> 	days are over.  The military now looks to private
> 	corporations to provide, say, for communications
> needs.
> 
> 	And, these very same corporations have dramatically
> 	cut R&D expenditures to bolster current profits.
> 
> So, let's look at this from the other end of the
> telescope.  Let's say that this country's actual
> GDP, once
> the consumer/household debt and multiplier effect is
> pulled out is
> really only $2 trillion.
> 
> And, let's say that because of the tumult of Federal
> obligations and liabilities on everything from the
> Pension Guarantee
> Corporation to FDIC to S.S., we will actually need
> come up
> with $60 trillion, tomorrow.
> 
> This gives us an effective federal debt/GDP ratio of
> 30 times,
> and at a time where the "corporate mood" of this
> country is
> negative.  This makes the apré-WWII ratio of 1.2
> look
> like a bargain.  And it was.
> 
> Regards,
> 
> Curtiss
> 
> ["fair use," "teachable moment," "archival," Section
> 107(a), 1976
> Copyright Act and 1998 Digital Millennium Act]
> 
> Subject: Re: Do Government Deficits Matter? Date:
> Mon, 16 Oct 2006
> 18:39:52 -0700 From: William F Hummel
> <wfhummel at comcast.net>
> Reply-To: UnderstandingMoney at googlegroups.com To: 
> UnderstandingMoney at googlegroups.com References: 1 ,
> 2
> 
> Steve,
> 
> You placed quotation marks around "debt burden"
> which suggests that
> you question whether government debt is in fact a
> burden. I fully
> agree. It could be a burden if it were like personal
> debt, which can
> become too large to service out of income. But the
> US government is
> not analogous to a consumer who needs feeding and
> housing. As
> economist Herb Stein said, "The government is no
> one. There is nobody
> here but us people." Government spending is entirely
> directed toward
> providing services to the people. The important
> issue is whether its
> spending is beneficial or wasteful. Unfortunately we
> have had an
> enormous amount of wasteful spending in recent
> years. 
> 
> The debt/GDP ratio is widely used by economists as
> some sort of
> indicator, but it is not at all clear what the
> significance of that
> indicator is. If there is some upper limit that
> creates a problem for
> the economy, we haven't experienced it yet. After
> WW2 it reached an
> all time peak of about 1.10, and thereafter we had
> twenty years of the
> best economic growth in our history. By 1974 it had
> dropped to about
> 0.24, and we had a long period stagflation. As you
> noted, today it is
> only about 0.4 in spite of the large budget
> deficits. The current
> debt/GDP ratio in Japan is about 1.30, and they
> appear headed toward a
> very strong period of growth after a decade of
> stagnation.
> 
> Interest paid on the debt and the taxes to cover
> those payments
> represent a balanced reciprocal flow of funds
> between the government
> and the private sector. Interest payments, like any
> other government
> spending, cause a redistribution of financial wealth
> from tax payers
> to the recipients of the spending. There are obvious
> inequities, but
> the redistribution is broadly toward lower incomes
> because of the
> progressive nature of our income tax system. And
> interest payments do
> not consume resources (labor and capital), so they
> are not subject to
> the sort of waste that other spending is.
> 
> It's worth noting that the net financial wealth in
> dollar-denominated
> assets of the private sector (both domestic and
> foreign) is equal to
> the total Treasury securities outstanding, including
> those held by the
> Fed as well as the public. The only Federal debt
> worth considering is
> that which pays interest to the private sector,
> namely bills, notes,
> and bonds. Intragovernment debt (trust funds) is
> basically a fiction
> and can be disregarded in the big picture. 
> 
> We may have a substantial growth in the debt/GDP
> ratio as the baby
> boomers draw benefits, but that is a financial
> wealth distribution
> problem rather than a resource problem. The notion
> that 
=== message truncated ===



		
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