Budget Deficit Numbers

Fun with supply and demand.
Tom Palven
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Budget Deficit Numbers

Post by Tom Palven » Fri Nov 01, 2013 12:51 pm

Supposedly the budget deficit is down to $680 billion this year.
http://swampland.time.com/2013/10/30/u- ... n-5-years/
I'm skeptical.
The Fed just announced that it's going to keep creating $85 billion dollars a month in "quantitative easing" money, which amounts to $1.2 trillion a year. That money is just created and not borrowed with bonds issued to US citizens, the Chinese government, etc, right or wrong? Is that $1.2 trillion added as part of the national debt? I don't see how it is if the current deficit is said to have dropped to $680 billion
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Re: Budget Deficit Numbers

Post by kennyc » Fri Nov 01, 2013 12:53 pm

Why are you skeptical....Under Clinton we had no deficit -- the damned Republicans are behind it!

http://www.factcheck.org/2008/02/the-bu ... r-clinton/
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Re: Budget Deficit Numbers

Post by Tom Palven » Fri Nov 01, 2013 1:01 pm

kennyc wrote:Why are you skeptical....Under Clinton we had no deficit -- the damned Republicans are behind it!

http://www.factcheck.org/2008/02/the-bu ... r-clinton/


I don't care if the Democrats, Republicans, a Bipartisan Politburo, or the Martians are behind it. The question is do the numbers add up?

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Re: Budget Deficit Numbers

Post by Tom Palven » Fri Nov 01, 2013 1:01 pm

kennyc wrote:Why are you skeptical....Under Clinton we had no deficit -- the damned Republicans are behind it!

http://www.factcheck.org/2008/02/the-bu ... r-clinton/


I don't care if the Democrats, Republicans, a Bipartisan Politburo, or the Martians are behind it. The question is do the numbers add up? :oldman:
Last edited by Tom Palven on Fri Nov 01, 2013 1:02 pm, edited 1 time in total.
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Re: Budget Deficit Numbers

Post by Rob Lister » Fri Nov 01, 2013 1:01 pm

Tom-Palven wrote:Supposedly the budget deficit is down to $680 billion this year.
http://swampland.time.com/2013/10/30/u- ... n-5-years/
I'm skeptical.
The Fed just announced that it's going to keep creating $85 billion dollars a month in "quantitative easing" money, which amounts to $1.2 trillion a year. That money is just created and not borrowed with bonds issued to US citizens, the Chinese government, etc, right or wrong? Is that $1.2 trillion added as part of the national debt? I don't see how it is if the current deficit is said to have dropped to $680 billion


If it is really just created out of nothing then it is actually payment on the debt, in a weird and twisted and inflationary way.
Skeptic much? Sure you do.
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Re: Budget Deficit Numbers

Post by kennyc » Fri Nov 01, 2013 1:04 pm

Baby Jeebus has a sad.....

:lol: :lol: :lol:
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Re: Budget Deficit Numbers

Post by Tom Palven » Fri Nov 01, 2013 1:12 pm

kennyc wrote:Baby Jeebus has a sad.....

:lol: :lol: :lol:


WTF is that supposed to mean? Is this alleged budget deficit reduction just political spin? A bunch of pathetic cow flop? Or Not!!!
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Re: Budget Deficit Numbers

Post by OlegTheBatty » Fri Nov 01, 2013 2:48 pm

Rob Lister wrote:
Tom-Palven wrote:Supposedly the budget deficit is down to $680 billion this year.
http://swampland.time.com/2013/10/30/u- ... n-5-years/
I'm skeptical.
The Fed just announced that it's going to keep creating $85 billion dollars a month in "quantitative easing" money, which amounts to $1.2 trillion a year. That money is just created and not borrowed with bonds issued to US citizens, the Chinese government, etc, right or wrong? Is that $1.2 trillion added as part of the national debt? I don't see how it is if the current deficit is said to have dropped to $680 billion


If it is really just created out of nothing then it is actually payment on the debt, in a weird and twisted and inflationary way.


It increases the money supply a little. It doesn't pay anything, really, though it dilutes the value of the debt by a teensy amount. Iinflationary, yes, but it is so small in comparison to the the overall money supply that the inflation is not measureable (lost in the noise).

Tom, it is not part of the budget, so it doesn't show there at all. It is money supply, not revenues or expenses.
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Re: Budget Deficit Numbers

Post by Kaepora Gaebora » Fri Nov 01, 2013 3:18 pm

This somehow reminds me of the silly plan cooked up by the media and others for Obama to create a trillion dollar coin and give it to the treasury to erase the debt. There were people really behind the idea, despite the extreme inflation it would create.

:offtopic:

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Re: Budget Deficit Numbers

Post by Tom Palven » Fri Nov 01, 2013 4:17 pm

Kaepora Gaebora wrote:This somehow reminds me of the silly plan cooked up by the media and others for Obama to create a trillion dollar coin and give it to the treasury to erase the debt. There were people really behind the idea, despite the extreme inflation it would create.

:offtopic:


I think that it would have to be a $14+ trillion coin to erase the debt.
But if the $85 billion a month (1.2 trillion a year) quantitative easing that Bernanke et al churn out is so insignificant, Oleg, why do they bother doing it?

The way it looks to me, and I could well be wrong, is that the US govt "only" has a $680 billion deficit this year because it didn't borrow the extra $1.2 trillion spent, it just printed it, but no congresspeople have come out and said that yet, as far as I know.
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Re: Budget Deficit Numbers

Post by Martin Brock » Fri Nov 01, 2013 8:42 pm

Tom-Palven wrote:Is that $1.2 trillion added as part of the national debt? I don't see how it is if the current deficit is said to have dropped to $680 billion

The QE program also purchases mortgage backed securities. Since "the crisis" began, the Fed has purchased roughly as many mortgage backed securities as Treasury securities (in dollar volume). Before "the crisis", it never purchased mortgage backed securities. This year, the Fed has purchased nearly all of the newly issued Treasury debt and also purchased a roughly equal volume of mortgage backed securities, so the volume of QE is twice the deficit.

http://en.wikipedia.org/wiki/File:U.S._ ... s_Held.png

Mortgage backed securities owned by the Fed do not add to the national debt (the Federal government's debt). They're assets of the Fed. I think the Treasury receives any interest paid on them. If the securities default, the Fed suffers the loss on its books.

In theory, the Federal Reserve Notes that the Fed issues in exchange for mortgage backed securities only provide liquidity, i.e. they permit banks and other institutions that previously held the securities to negotiate with bits of their value. If the Fed must profit from its trade in these securities, maybe this theory isn't ridiculous, but since the Fed has never dealt in mortgage backed securities before, it has no record of profiting this way.
Last edited by Martin Brock on Fri Nov 01, 2013 9:02 pm, edited 1 time in total.
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Re: Budget Deficit Numbers

Post by Tom Palven » Fri Nov 01, 2013 8:58 pm

Martin Brock wrote:
Tom-Palven wrote:Is that $1.2 trillion added as part of the national debt? I don't see how it is if the current deficit is said to have dropped to $680 billion

The QE program also purchases mortgage backed securities. Since "the crisis" began, the Fed has purchased roughly as many mortgage backed securities as Treasury securities (in dollar volume). Before "the crisis", it never purchased mortgage backed securities. This year, the Fed has purchased nearly all of the newly issued Treasury debt and also purchased a roughly equal volume of mortgage backed securities, so the volume of QE is twice the deficit.

http://en.wikipedia.org/wiki/File:U.S._ ... s_Held.png

Mortgage backed securities owned by the Fed do not add to the national debt (the Federal government's debt). They're assets of the Fed. I think the Treasury receives any interest paid on them. If the securities default, the Fed suffers the loss on its books.


That paints a heckava picture from 2009, but I won't pretend to understand it. Should average Americans be overjoyed that the US budget deficit this year is allegedly $680 billion?


I'm starting to get an inkling as to why the slow. stagnating, velocity of money is postponing significant inflation, but what's going to happen down the line? should we expect to see a burst of hyperinflation? Should we hoard nickels or some other tangible asset that may be undervalued? If so, what?
Last edited by Tom Palven on Fri Nov 01, 2013 9:20 pm, edited 3 times in total.
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Re: Budget Deficit Numbers

Post by Martin Brock » Fri Nov 01, 2013 9:13 pm

Tom-Palven wrote:That paints a heckava picture from 2009, but I won't pretend to understand it. Should average Americans be overjoyed that the US budget deficit this year is allegedly $680 billion?

I'm not overjoyed, but no one in D.C. cares what average Americans think.

I don't expect hyperinflation in the dollar, and if you bought gold or silver a year ago, you're deeply regretting in now. Maybe now is a longer term buying opportunity. I'm thinking of buying silver, but if I'm your investment adviser, you're only following another blind man.
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Re: Budget Deficit Numbers

Post by Tom Palven » Fri Nov 01, 2013 9:29 pm

I menitoned nickels because Wikipedia says that it costs the US mint 11 cents to produce nickels, which are 75% copper and 25% nickel, and that the mint is considering substituting some other metal.
http://en.wikipedia.org/wiki/Nickel_(United_States_coin)
They may be unweildly, low-value, and hard to store to invest in, but if hyperinflation occurred and hard currency came back into vogue, and a nickel again became worth half of a silver dime, that would be significant, probably meaning that a nickel could once again buy to you a large Snickers bar, as was the case in the 1950's.
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Re: Budget Deficit Numbers

Post by Austin Harper » Fri Nov 01, 2013 9:36 pm

I would be perfectly fine with rounding all cash purchases to the nearest 10¢ and getting rid of the penny and nickel. Or really even the nearest 25¢ would probably be fine.
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Re: Budget Deficit Numbers

Post by Martin Brock » Fri Nov 01, 2013 9:44 pm

The metal in a nickel is worth a little over $4/pound, and 91 nickels ($4.55) weighs a pound, so the face value is a bit more than the metal price at this point. The cost of producing a nickel doesn't matter unless you just like nickels vs. some other form of the same metal.

I agree that then penny has outlived its usefulness. Not sure about dimes though.
People associating freely respect norms of their choice, and relationships governed this way are necessarily interdependent.

More central authorities conquer by dividing, imposing norms channeling the value of synergy toward themselves.

"Every man for himself" is the prescription of a state, not a free community. A state protects the poor from the rich only in fairy tales.

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Re: Budget Deficit Numbers

Post by OlegTheBatty » Fri Nov 01, 2013 10:02 pm

There is no hyperinflation on the horizon. The money supply comes from 2 sources - the fiat money supply, which most everyone is familiar with; and the endogenous money supply.

When a bank loans money out, it increases the money supply. When the loan is repaid, the money supply is reduced accordingly. 50 years ago, in the days of fractional reserve banking, this endogenous money supply was irrelevant, because loans mostly got paid back.

Nowadays, with fractional reserve banking being mostly fictional, banks lend out a lot more, and a lot less (percentagewise) gets paid back, because most loans are for investment purposes rather than asset acquisition, and that money gets rolled over rather than paid back. So, the endogenous money supply is growing, and at a faster rate than fiat money. It has been growing since the 60's, and is collossal. Fiat money is tiny in comparison, and almost irrelevant as an addition to the money supply. That's why Bernanke could double the fiat money supply over a two year period without causing inflation.

That doesn't mean that there will never be hyperinflation - there are other causes of inflation than increases to the money supply, and the systems that support endogenous money are not carved in stone. It could all change, and the house of cards come crashing down. 2008 was just a hiccup, and look what that did.

At present, though, it's business as usual. Even the economists who predicted 2008 are not forecasting an end to endogenous money nor hyperinflation in the foreseeable future.
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Re: Budget Deficit Numbers

Post by Tom Palven » Sat Nov 02, 2013 1:13 am

OlegTheBatty wrote:There is no hyperinflation on the horizon. The money supply comes from 2 sources - the fiat money supply, which most everyone is familiar with; and the endogenous money supply.

When a bank loans money out, it increases the money supply. When the loan is repaid, the money supply is reduced accordingly. 50 years ago, in the days of fractional reserve banking, this endogenous money supply was irrelevant, because loans mostly got paid back.

Nowadays, with fractional reserve banking being mostly fictional, banks lend out a lot more, and a lot less (percentagewise) gets paid back, because most loans are for investment purposes rather than asset acquisition, and that money gets rolled over rather than paid back. So, the endogenous money supply is growing, and at a faster rate than fiat money. It has been growing since the 60's, and is collossal. Fiat money is tiny in comparison, and almost irrelevant as an addition to the money supply. That's why Bernanke could double the fiat money supply over a two year period without causing inflation.

That doesn't mean that there will never be hyperinflation - there are other causes of inflation than increases to the money supply, and the systems that support endogenous money are not carved in stone. It could all change, and the house of cards come crashing down. 2008 was just a hiccup, and look what that did.

At present, though, it's business as usual. Even the economists who predicted 2008 are not forecasting an end to endogenous money nor hyperinflation in the foreseeable future.


Wut in hail ar yew talkin' abbout , Bubba? Endogdiniss wut? Dew you evin rember wen a nikle wuz a nikle, an yew wuz mighty happy to have wun?
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Re: Budget Deficit Numbers

Post by Tom Palven » Sat Nov 02, 2013 1:48 am

Austin Harper wrote:I would be perfectly fine with rounding all cash purchases to the nearest 10¢ and getting rid of the penny and nickel. Or really even the nearest 25¢ would probably be fine.


According to Wikipedia (the source of all knowledge), since 1982 pennies are 97.5 % zinc, but they still cost around two cents each to produce. It is the zinc lobby that prevents Congress from abandoning the useless penny.
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Re: Budget Deficit Numbers

Post by Tom Palven » Sat Nov 02, 2013 10:45 am

Political concessions to zinc interests might include abandoning the penny, but making nickels out of zinc.
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Re: Budget Deficit Numbers

Post by Martin Brock » Sat Nov 02, 2013 1:55 pm

OlegTheBatty wrote:There is no hyperinflation on the horizon. The money supply comes from 2 sources - the fiat money supply, which most everyone is familiar with; and the endogenous money supply.

How are you defining "fiat money" here?

The word "fiat" means "force" or "decree". In Economics, fiat money is not the money that banks create by issuing negotiable promissory notes. People using "fiat money" this way confuse promissory notes under free banking with the reserve notes of a statutory central bank.

Fiat money is money that a state gives value by forcing the money to circulate through a program of taxation, spending and selling entitlement to its tax revenue. A state doesn't "borrow" in the same sense that a non-state borrows. A state sells entitlement to its tax revenue.

What I'm describing now is called Modern Monetary Theory in academic Economics. All U.S. dollars are fiat money. I'm not aware of theory distinguishing a "fiat" component of the circulating dollar supply from a "non-fiat" component.

http://en.wikipedia.org/wiki/Chartalism

When a bank loans money out, it increases the money supply. When the loan is repaid, the money supply is reduced accordingly.

Depends on the definition of "money supply". Suppose a bank lends you a thousand dollars. You spend the thousand dollars on something I'm selling. I then spend the thousand dollars on a certificate of deposit. By some measures, the money supply shrinks when I buy this CD, not when you repay the loan.

50 years ago, in the days of fractional reserve banking, this endogenous money supply was irrelevant, because loans mostly got paid back.

How are you defining "fractional reserve banking" here?

Nowadays, with fractional reserve banking being mostly fictional, banks lend out a lot more, and a lot less (percentagewise) gets paid back, because most loans are for investment purposes rather than asset acquisition, and that money gets rolled over rather than paid back.

Successful investment acquires assets that didn't exist previously, so I don't know what you mean by "rolled over rather than paid back" in this context.

Suppose I borrow a thousand dollars. The money supply could grow by less than a thousand if the bank lends its demand deposits.

But suppose the money supply grows by a thousand dollars. I spend this thousand dollars on raw materials, and with only these materials and my labor, I produce two thousand dollars worth of goods. I sell the goods, repay the loan and spend a thousand dollars on my consumption. The money supply shrinks by a thousand dollars.

If I then borrow another thousand dollars to repeat this process, I have not rolled over the original loan. Right?

If consume only $500 of my second $1000 and then buy another $500 worth of raw materials, I can produce another $1000 worth of goods. That's reinvestment, but I haven't rolled over any loan here. If someone else borrows $1000 to buy my goods, the endogenous money supply could increase, but that's not rolling over a loan either.

If I borrow a thousand and produce nothing but spend the thousand on my consumption and then borrow another thousand, I also haven't rolled over the loan. I have only gone deeper in debt. If I repeat this process, I'll eventually exhaust my creditworthiness.

But suppose I'm a state. As a state, I'm not limited by my own productivity, because I may tax everyone else's productivity. If my expenditures create positive externalities (like the value of using public roads), then I can in principle borrow more and more indefinitely without exhausting my creditworthiness. My spending makes everyone else richer, and I can tax the increasing riches.

In this scenario, a state with a central bank might roll over loans indefinitely, but this process is unlike any lending I've described above, because a non-state borrower may not tax the value of any positive externality that he creates.

States tell this story a lot. I'm not saying that states do create positive externalities this way. A state's debt can also grow indefinitely if its subject economy grows regardless of its taxation and spending.

Fiat money is tiny in comparison, and almost irrelevant as an addition to the money supply. That's why Bernanke could double the fiat money supply over a two year period without causing inflation.

"Fiat money supply" is what you're calling the value of Fed holdings? Fed holdings are not part of the money supply at all conventionally, because the Fed may hold indefinitely and needn't profit in real terms or even in nominal terms.

Lately, the Fed has increased its holdings rapidly without causing inflation by paying interest on deposits at the Fed among other things. When the Fed buys mortgage backed securities (MBS) from banks, the banking system need not lend proceeds of selling the MBS because they can deposit the cash at the Fed and earn comparable interest. Before 2008, the Fed never bought MBS and didn't pay interest on deposits, so this policy is not business as usual.

That doesn't mean that there will never be hyperinflation - there are other causes of inflation than increases to the money supply, ...

Inflation occurs when the volume of money chasing goods grows more rapidly than the volume of goods for sale. A fiat money system can create inflation by enabling the state to increase the supply of money by spending without creating the positive externalities or without taxing the resulting wealth sufficiently thus increasing the volume of money chasing goods so rapidly.

Hyperinflation occurs at a tipping point at which people are so reluctant to hold the fiat currency that it effectively ceases to circulate. I don't see that happening to the U.S. dollar anytime soon, but the pressure on state spending rises by the day.
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Re: Budget Deficit Numbers

Post by Austin Harper » Mon Nov 04, 2013 4:43 pm

Martin Brock wrote:
OlegTheBatty wrote:There is no hyperinflation on the horizon. The money supply comes from 2 sources - the fiat money supply, which most everyone is familiar with; and the endogenous money supply.

How are you defining "fiat money" here?

The word "fiat" means "force" or "decree".

Fiat means "command", "order", or "decree". It comes from the Latin fiat ("let it be done", third-person singular present passive subjunctive of facio "I make" or "I do".
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Re: Budget Deficit Numbers

Post by Martin Brock » Mon Nov 04, 2013 8:11 pm

Austin Harper wrote:Fiat means "command", "order", or "decree". It comes from the Latin fiat ("let it be done", third-person singular present passive subjunctive of facio "I make" or "I do".

Right. It does not mean "having no intrinsic value" or "negotiable promissory note not redeemable on demand for specie" for example. Fiat money is any money that a state commands to circulate, by requiring subjects to obtain it to pay taxes for example. Though modern monetary theory suggests that forcible circulation alone can give fiat money its value, gold coins can be fiat money in this sense as easily as paper notes issued by a state and promising redemption in nothing else. The common dichotomy between fiat money and a gold standard therefore presents a false choice. Only competing currencies, with no particular currency favored by the state, avoids fiat money.
People associating freely respect norms of their choice, and relationships governed this way are necessarily interdependent.

More central authorities conquer by dividing, imposing norms channeling the value of synergy toward themselves.

"Every man for himself" is the prescription of a state, not a free community. A state protects the poor from the rich only in fairy tales.

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Re: Budget Deficit Numbers

Post by Tom Palven » Mon Nov 04, 2013 10:03 pm

Martin Brock wrote:
Austin Harper wrote:Fiat means "command", "order", or "decree". It comes from the Latin fiat ("let it be done", third-person singular present passive subjunctive of facio "I make" or "I do".

Right. It does not mean "having no intrinsic value" or "negotiable promissory note not redeemable on demand for specie" for example. Fiat money is any money that a state commands to circulate, by requiring subjects to obtain it to pay taxes for example. Though modern monetary theory suggests that forcible circulation alone can give fiat money its value, gold coins can be fiat money in this sense as easily as paper notes issued by a state and promising redemption in nothing else. The common dichotomy between fiat money and a gold standard therefore presents a false choice. Only competing currencies, with no particular currency favored by the state, avoids fiat money.


That's interesting.
But, what the heck kind of intelligent design are you selling?
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Re: Budget Deficit Numbers

Post by Martin Brock » Mon Nov 04, 2013 10:26 pm

Tom-Palven wrote:That's interesting.
But, what the heck kind of intelligent design are you selling?

You're only now noticing my tag line? I'm a fairly conventional Darwinist. My point is that evolution by natural selection is information processing and that thinking of the biosphere as having a "mind" that "designs" living forms (or the genome imagined as a sequence of symbols) over eons is no more ridiculous than thinking of a bundle of neurons in my head as having a "mind" that "designs" the words in this post.

I discuss the idea a lot in the archives but not much lately. I declared victory here.

viewtopic.php?f=33&t=18418&hilit=Dennett
People associating freely respect norms of their choice, and relationships governed this way are necessarily interdependent.

More central authorities conquer by dividing, imposing norms channeling the value of synergy toward themselves.

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Re: Budget Deficit Numbers

Post by Tom Palven » Tue Nov 05, 2013 6:23 am

Martin Brock wrote:
Tom-Palven wrote:That's interesting.
But, what the heck kind of intelligent design are you selling?

You're only now noticing my tag line? I'm a fairly conventional Darwinist. My point is that evolution by natural selection is information processing and that thinking of the biosphere as having a "mind" that "designs" living forms (or the genome imagined as a sequence of symbols) over eons is no more ridiculous than thinking of a bundle of neurons in my head as having a "mind" that "designs" the words in this post.

I discuss the idea a lot in the archives but not much lately. I declared victory here.

viewtopic.php?f=33&t=18418&hilit=Dennett


Yes, just noticed. I've been accused of not having "broad external awareness" and am probably guilty of it. I would to have sleep on or somehow process your proposition to try to figure out just what might or might not be ridiculous. The fact that Pyrrho seems to agree with you is pretty persuasive, and I'll just let it got at that in the meantime.
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Re: Budget Deficit Numbers

Post by Lausten » Mon Jan 07, 2019 5:36 pm

I was just introduced to Modern Monetary Theory recently. On first take, it seems like it ignores some basic facts, like how money is created and how it enters the economy, but money theory is not something I can claim expertise in.

So, did I just happen to come across someone who is still a true-believer in MMT, or is it rearing its ugly head again?
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Re: Budget Deficit Numbers

Post by bobbo_the_Pragmatist » Mon Jan 07, 2019 5:46 pm

Lausten: picking up on a thread 6 years old is..................admirable..............but who/what are you referring to? Can I buy a clue??
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Re: Budget Deficit Numbers

Post by Gord » Mon Jan 07, 2019 9:18 pm

bobbo_the_Pragmatist wrote:
Mon Jan 07, 2019 5:46 pm
Can I buy a clue??
https://en.wikipedia.org/wiki/Modern_Monetary_Theory

That'll be two cents, please.
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Re: Budget Deficit Numbers

Post by Martin Brock » Tue Jan 15, 2019 1:05 am

I wouldn't call myself a "true believer", but MMT describes the U.S. monetary system and similar systems. I don't "favor" the system, quite the contrary, but it is what it is, and MMT describes what it is.
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