We're running out of virgins … | 106 comments (106 topical, editorial, 0 hidden)

Re: it's analogy not a Ph.D. thesis (none / 0)

The idea that in the long term the government should balance the budget seems to me to be perfectly reasonable.

In a nominally growing economy, balancing the sovereign budget is deflationary. Unless you believe that economic growth makes people want to hold a lower amount of purchasing power in government securities.

I am unconvinced that dedicating a large portion of tax revenue to rentier bond income is such a great idea.

Balancing the budget, by being inherently deflationary, does precisely this.

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jul 10th, 2011 at 09:00:19 AM EST
[ Parent ]

Re: it's analogy not a Ph.D. thesis (none / 0)

The US government spends around $400b/year on debt interest. That's enough money to fund a hell of an infrastructure project - and it currently is a dedication of a large part of government revenues to rentier income.

The goal of the right is to increase that by starving revenue and creating financial crisis. At that point, the government is directing a huge percentage of tax revenue at bond investors and becomes captive to the demands of the bond market.

by rootless2 on Sun Jul 10th, 2011 at 09:57:36 AM EST
[ Parent ]

Re: it's analogy not a Ph.D. thesis (none / 0)

That is a complete red herring when discussing fiscal policy. It has nothing to do with the federal budget and everything to do with the Federal Reserve deciding to subsidise bondholders. If the Fed continues to decide to do that, no amount of balancing the budget will ever reduce the subsidy, and if the Fed decides to stop doing it you can run any deficit you like for as long as you like (barring dollarisation of your economy).

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jul 10th, 2011 at 10:15:42 AM EST
[ Parent ]

Re: it's analogy not a Ph.D. thesis (none / 0)

90% of people would look at a budget where the Central bank purchases and destroys $500B/year of treasury notes and the budget is in balance and be satisfied that the government was living within its means.

Deficit means borrowing to most of us.

by rootless2 on Sun Jul 10th, 2011 at 10:48:48 AM EST
[ Parent ]

Re: it's analogy not a Ph.D. thesis (none / 0)

But if the government sells $500B/year in treasury notes to the Fed it would be $500B/year in deficit. The budget would not be balanced. And there wouldn't be a problem because the Fed passes on its profit to the Treasury so any debt from the Treasury to the Fed is ultimately owed to itself.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Sun Jul 10th, 2011 at 11:26:48 AM EST
[ Parent ]

Re: it's analogy not a Ph.D. thesis (none / 0)

The problem would only arise if the Fed ever sold its holdings back into the private market.

by rootless2 on Sun Jul 10th, 2011 at 11:53:28 AM EST
[ Parent ]

Re: it's analogy not a Ph.D. thesis (none / 0)

Right, so the situation we're in now is one in which the "debt ceiling" would be a binding constraint if all the Federal debt were in private hands, but since lots of it is in the hands of the Fed it shouldn't count. Except, for people who obsess about the government balance sheet, it does count.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Sun Jul 10th, 2011 at 12:45:24 PM EST
[ Parent ]

sure (none / 0)

in fact, even though I don't think that debt is problem free, the interest rate burden on the US government is historically low so the debt is certainly not an emergency issue.

The point I'm making is that balancing the government books does not have to carry a right wing argument. In fact,the Irish opposition should be arguing that like any householder who has overextended on a mortgage, the Irish government needs to cut its losses, turn the assets over the the lender and try to make do on a more modest budget. The motivations for jumping up and down and yelling that governments are not like householders are unclear.

by rootless2 on Sun Jul 10th, 2011 at 12:53:50 PM EST
[ Parent ]

We're running out of virgins … | 106 comments (106 topical, 0 editorial, 0 hidden)

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