The answer is the domestic private sector
Jim Hamilton used the Federal Reserve Flow of Funds data to present a question: who will buy “the additional $8 trillion in net new debt that would be issued over the next decade under the CBO’s alternative fiscal scenario.”
I thought that the analysis was curious and too “partial”. If one believes the deleveraging story, then domestic private saving is going to rise. The answer to his question seems pretty obvious…
Let’s say that consumption goes back back to the 1960’s-style 62% of GDP, then get ready for household Treasury accumulation. Spanning the decade of 1960, households held on average 30% of the Treasury’s liabilities.
A simple example illustrates my point. If the Treasury’s book doubles to $16.5 trillion, and the household share of Treasury holdings rises to 30% – as of Q1 2010 the stock of Treasuries outstanding was just about $8.3 trillion (see L.209 here) – then households will accumulate over $4 trillion of those new Treasuries. That’s just households, and holding all else equal (like financial funds and businesses).
So the answer is: the domestic private sector.
This household-based ability to finance the solution is probably just the flip side of the problem. To the extent households begin to spend more, government can afford to spend less. As long as households are unwilling to spend more, they will finance Treasury debt, allowing government to spend more. While it is fortunate that this static balances works the way it does, the static balance is not what we care about. How do we move from large deficits financed by cautious households to small deficits financed by a more rapidly growing economy?
(Waiting for the usual trolls to say “tax cuts and reduced regulation”.)
Tax Cuts & Reduced Regulation
Which won’t work. Debt deflation doesn’t just isn’t organizationally destructive, but collapses savings and most business is gone(accept for the corporate elite). With no jobs and capital, money essentially deflates toward 0. The only reason savings ticked up after the housing bust was because the government intervened.
Considering the US’s economic fortunes will be destroyed, so would the white middle class. Poof, gone. That is when problems begin for your ilk Jimi. You will be called a traiter and tortured to you admit your treason. Then killed, considering you will be a “subhuman” filth.
It is why the corporate elite isn’t fond of deflationary spirals, not because they wouldn’t exist, but he collapse would threaten their “political” being.
Sperandeo on hyperinflation which will come from deflation – slow growth hurts tax revenue, deficits rise, bond buyers walk away, fed prints money, then the inflation.Of course, this could take years to play out. Depedencies are if the economy grows or not, and if tax hikes raise revenue in a declining economy.
Video
http://www.msnbc.msn.com/id/21134540/vp/38315235#38315235
Mcwop said: “…this could take years to play out. Depedencies are if the economy grows or not, and if tax hikes raise revenue in a declining economy.” And, if tax hikes further exacerbate the decline!
Since, we are in the middle of an economics history lesson of epic proportions. One that shows us the near catastrophic failure of keynesian economic policy, but show us even more, tha abject failure of liberal policies. The modicum of success the Obama administration has achieved is using supply side economic policies.
After that, let me ask the libertariat here. If economic/business growth is the answer, what in Obama’s stimulus provide it? What in his bully pulpit economic speeches even hints at it?
For KH, the answer is tax aid for businesses, especially those who are small. Over 70% of new jobs are created by these small businesses, and, 60% of the taxes collected from the top 2% is from business income (these same small businesses.)
If the solution is so obvious to even old duffers like me, why is it not so for liberal economists? Spencer, KH, Mike?
TC,
You and your ilk show us the path back to growth, somewhere in the range where these deficits can be managed and you’ll have our full attention.
Until then, the battle line is drawn, if we can’t control the spending and offer some confidence to buisness, then no more money to throw down the rat-hole.
CoRev,
What’s up at sceptical optimist?
The epic failure is in monetarism and the realization that it was voodoo economics.
Keynesianism has not been evident in 40 years odd years.
Voodoo economics, the history lesson is that voodoo economic did nothing but inflate the currency and devlop a humongous liquidity trap, after the series of bubbles to delay the reality of monetarism.
The piper demands ‘is pay.
kharris,
Yes, it’s a static identity. But it’s all defensive, i.e., the private sector went through a massive credit bubble and saving (or default) is the only path from here.
What the government needs to do is to run direct stimulus into the economy on a more discretionary basis that will facilitate economic growth through jobs programs (for example) that ensure resource utilization. Furthermore, as China and Japan (China will eventually reduce its saving rate and Japan’s demographics assure a lower saving rate) draw down on saving, and the dollar resumes its downward trend, the current account will improve, and the burden will fall off of the shoulders of the government to “facilitate” domestic saving.
Rebecca
“Tax Cuts & Reduced Regulation”
Yep, Jimi, that’s certainly what got us into the ditch.
Now the question is, how do we undo the damage caused by such mindless policies?
“Keynesianism has not been evident in 40 years odd years”
Absolutely true. The whole Keynesian narrative thrown around by the right has nothing to do with Keynes and everything to do with Milton Friedman. They use Keynes the way the use “tax and spend liberals. Funny thing is, if they were really interested in deficits (they’re not) they should be ENDORSING tax and spend, not the spend and no tax of republican fame. Most of the people throwing Keynes’ name around havent read three paragraphs out of his books.
Joel said snarkily: “Now the question is, how do we undo the damage caused by such mindless policies?” Yup! that’s exactly what Jimi and I and most conservatives are asking.
Blaming Bush is getting a little tiresome, since you can not admit where the fault lies. Take a look at the enclosed chart. Study it carefully. Unless you can point out and explain the mindless policies that created the ~4.5% unemployment and 2/3s reduction in annual budget deficits and compare those policies to the wonderful economic world your party’s policies are creating, then go back into your dark little corner of denial.
Sheesh!!!!
ILSM, I think Steve (Skeptical Optimist) got sick. He hasn;t posted since last year.
As to your vodoo comment, just another idealog trying to blame anyone but themselves. Dem/Lib policies suck. What’s successful is what Bush started.
Greg,
The difference being Republicans can produce growth. If you can’t get growth anywhere, the options are inflation and tax increases.
Neither of which are good for the little guy, and I thought that you guys cared about the little guy?
BTW….Republicans support Keyensian spending, we just do it thru the Military. Of course, all of sudden Keyensian spending isn’t really Keyensian spending according to you guys….but the reality is….It Is!
Oh…and before anybody figured out what was in the Stimilus Bill, we all supported spending for the new Green Tech and New Green Infrastructure….what happend there?
Say CoRev, you”ve used that little green chart several time of late, but I can’t find any link or reference to its origins. Maybe you could supply that bit of information so that we can all recognize the validity of the data presented therin. Not that I question the validity of the grapn=h, but I do recall that not too long past you managed to make reference to an article by Dick Morris which appeared on a David Horowitz web site as though it were some form of reasonable argument.
Say CoRev, you”ve used that little green chart several times of late, but I can’t find any link or reference to its origins. Maybe you could supply that bit of information so that we can all recognize the validity of the data presented therein. Not that I question the validity of the graph, but I do recall that not too long past you managed to make reference to an article by Dick Morris which appeared on a David Horowitz web site as though it were some form of reasonable argument.
CoRev,
Sorry to hear.
He was as much fun as listening to Rush and Glenn. And I could get to him.
Steve was a cheerleader for unlimited [Greenspan/Bernanke] printing money as long as the Chinese and other slave labor camps did not mind it was still wet when they gave us things in exchange for them.
When the oil ceiling was hit the house of cards came down.
Showed there are physics and limits at least until we go through the pains of getting energy back up to unlimited status like Chinese labor.
Maybe it was ideologs like me………………………………..
Jack,
The chart tracks the unified deficit, which does not reflect the funny money borrowed from trust funds like SS, Medicare and the OPM civil service retirement funds. Or delays to building roads bridges and airports. The general fund deficits are hugely worse throughout. the years
Using unified purposefully hides the fact that the discretionary budge general fund has accelerated the US G debt creation.
Cheney was a bit obfuscatory when he said “deficits do not matter.” What he neglected to add: “total debt does not matter either, because we (the next president will go along whether rethug or dim) don’t plan to repay those special bonds funded by payroll taxes of workers”
They are killing the New Deal which implied the workers would collect rents.
The rich collect rents, labor pays rents.
Tax cuts funded by labor perpetuate the “labor always pays “paradigm.
In my view the odds of “households accumulating $4 trillion of Treasury paper is close to zero. Do you think all those households are stupid? They are not. Why would they buy this crap at ZIRP yields? After tax and inflation one is assured of losses.
The only way this could happen is if we were in a perpetual state of recession. That would keep money out of traditional investments and locked up in a mattress. But those conditions would be a disaster. We would be in a depression.
There is no way we can fund $4t in this time frame. We will blow up.
ILSM, I never thought otherwise. “Maybe it was ideologs like me………………………………..” ;-))
ILSM, why the class envy/warfare commentary? Deficits are very simple math. Revenue in minus expenditures out = ~borrowing (deficit). The approximate is used because there sometimes are lags.
How many more failures of Obama policy before your advoctes realize haw big a disaster he is creating? Or, altertnatively, how wrong are his/your policies? The latest:
“
Today, Neil Barofsky, the Special Inspector General for the Troubled Asset Relief Program, or SIGTARP — in layman’s terms, the government’s watchdog over the program to stabilize the banking sector and housing market — released a quarterly report on how things are going. TARP programs did well to stabilize the banking sector, Barofsky says, despite incidences of fraud and other complaints.
But not so for housing. Barofsky blasts the Obama administration’s efforts as expensive, inefficient and useless at stemming the foreclosure crisis, also arguing that Treasury failed to set meaningful goals for itself:…”
From here: http://washingtonindependent.com/92139/bailout-inspector-blasts-treasury-efforts-on-housing
The fact that you find something obvious doesn’t tell us that it’s right. The fact that you make the same unsupported claims here as you have made endlessly in other comments tell us that you are not really interested in evidence, but just droning on with a bunch of tired old talking points.
As others have noted, you don’t seem to know what Keynes recommended, but you condemn Keynsian policy. You claim that the success Obama has had is due to supply-side policies, without offering a single bit of evidence. I realize that an old duffer may not care to look at what is actually going on, but that’s how honest folk do it.
As to the small business line, yeah, we need to get small business in better shape. What you have recommended, though, is a transfer from the rest of the public to business owners. Since the evidence for tax cuts aimed at small business stimulating growth is pretty thin, I’m not sure why we should go that way. I’m also a little surprised to see the a badly misguided view of the place of small business in the labor market repeated, even by you. Small businesses do generate a lot of gross jobs, and they also generate a lot of gross lay-offs. That’s because small businesses start and fail with high frequency. Net job growth is far more evenly distributed across business size. My understanding is that very large firms tend to go static, boosting head-counts through acquisition rather than exapnded operation, but otherwise, greater stability among larger firms mean that the openings they create tend to last, unlike those among small firms.
Oh, and by the way, anybody with the slightest head for math would have caught this. If small firms ceate 70% of jobs, year after year, then soon they would employ nearly everybody, or become big firms, and there would no longer be any big firms. Some small firms become big, but on the way, their hiring no longer coungs as small business hiring. The SBA makes claims about small business, because that’s how it’s budget gets justified. The rest of us should know the difference between gross and net. Small businesses account for nowhere near 70% of jobs, and so cannot account for 70% of net new jobs.
jimi
i think the problem is that your side has a lack of imagination. the debt is manageable. all debts are. one way or the other. the risk in debt is to the lender. it’s okay. it’s what the lender is getting paid for.
trouble is, the lenders these days having gotten used to good times view them as an entitlement.
trust me, when the people can spend, someone will find a way to make the things they want to buy. they will then borrow the money (incur debt) to get their business rolling.
put briefly, the recession and the debt are caused by the very policies that your friends demand.
it is the fatal flaw of capitalism. a flaw that Roosevelt showed how to treat. but capitalists cannot, by their nature, understand it. it takes a strong doctor to make them take their medicine.
please note, i am not recommending “socialism”, merely telling you how to fix capitalism when it gets sick.
Krasting
i am not at all clever about high finance, nor do i really follow the argument here, but folks like me will buy low yield, or even negative real yield bonds as long as we have a little spare cash we need to protect. it’s not that it’s better than nothing, it’s that it’s better than all the other ways we might lose it.
but folks is different from big time bond traders who are used to making money and cannot understand that some times is worse than others, or, in fandem dictu, that the policies favored by big time bond traders sometimes cause bad times.
don’t mean to sound mystical here but
money is an illusion. the real economy is people eating and sleeping indoors and trying to buy a few comforts and pleasures when they can. the money people can bring this all to a near stop when they get scared and stupid, but one way or another it will start again.
it might take another Roosevelt, or it might take another Hitler, or it might take another Bastille, or if we are lucky, the normal swings of the business cycle will start a recovery all on its own before the people have to take things into their own hands.
CoRev
you illustrate why we have an adversarial justice system, and an adversarial political system… two parties fighting it out like dogs in the hope that one dog will save us from the disaster the other dog would bring us if he had his own way.
there is no hope that you, or your enemies, will ever come to any agreement because you each (i am being fair and balanced here) have a closed circuit mind system. eveything you see is judged in terms of what you believe, and you cannot in fact even see anything that contrdicts it.
so, no hope even of this little message having any effect, but maybe somewhere in the back of your minid you might reserve a little corner, leave the light on, that says “i could be wrong about this.”
I know that the Judeo-Christian ethic frowns on debt, particularly if paying interest is involved. On the other hand, capitalism is almost completely based on debt with repayment either in specie or equity. I think a lot depends on what is balancing the debt on the other side of the books. If you spend the money on a corporate tax cut, you get piles of cash sitting around idle in corporate coffers. If you spend the money on a war in Iraq, you get – well, what do you get? If you spend the money on fiber optics from door to door, you get a valuable asset and you can milk it for tax money. If you spend the money on public health care, you get healthier citizens, lower disability costs and smaller, more efficient emergency rooms.
This is all basic double entry bookkeeping. Every plus has a minus, but what matters is where on the balance sheet it all adds up. The total is going to be zero whether a company is growing or shrinking, but that doesn’t mean an enterprise can’t grow or shrink.
If we are actually buying useful stuff for the money, then the borrowing isn’t a big issue. History shows that we can carry a pretty big deficit, and if English history is a guide, we could even carry a bigger one, so long as it helps us grow. The big problem is that we go through cycles of investment oriented spending under Democrats and pump money down the tubes spending under Republicans, and, unlike the former, the latter doesn’t pay for itself with growth. (One blogger here wrote a book about this.)
Sure, debt is bad, but it is also a valuable tool.
KH, sigh. spencer had to start a whole new thread, that has already been disproved, and the answer to your question is in your own comment.
As I have said in the past, it’s getting easier and even more easy to tell when we are hitting home. The first clue is when one or more of the ole Obama cheering team responds. The second is when they can find little real support for their comment and must resort to ad home or the other traditional misdirection arguments.
Dem/Libs, I know its disappointing, but, your theories, policies, and arguments are being recognized as very, very weak. If they are not just plain wrong.
November is nearly here! The real issue will be, will the Dem leadership break the party? Will the election losses be large enough to offset the horrible mistakes made?
Kaleberg said: “History shows that we can carry a pretty big deficit, and if English history is a guide, we could even carry a bigger one, so long as it helps us grow.” And that’s the center piece of the argument. We need that growth, and this administration appears to be trying anything to do the opposite.
Corev,
Amen!