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Thread: Explaining Why Federal Deficits Are Needed[W:5330]

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    Explaining Why Federal Deficits Are Needed[W:5330]

    I encourage everyone to look at this with an open mind.
    Explaining Why Federal Deficits Are Needed - New Economic PerspectivesNew Economic Perspectives
    Most MMT advocates probably took months to get comfortable with it. But like a personal computer, one need not understand its innards to use its power. The great power of MMT is its lesson that the federal government can create new dollars by running deficits to do things that should be done.

    Most Americans believe the federal government is like a family or business that must live within its income. On the surface, that makes sense and the reasons why it is wrong are complex. Here are five nuggets, or simple ways to explain why it is wrong to voters who will never be economists. They show why federal deficits are necessary. They can be adapted and used as appropriate.

    Federal deficits are necessary and the government normally runs them. It ran them during 129 of the past 200 years or nearly two thirds of the time. During the other third, it ran surpluses to reduce its debt during five periods of six or more years. Each period led to a major depression.

    1823-1836: Federal debt reduced 99% – depression began 1837.
    1852-1857: ” ” ” 59% – ” ” 1857.
    1867-1873: ” ” ” 27% – ” ” 1873.
    1880-1893: ” ” ” 57% – ” ” 1893.
    1920-1930: ” ” ” 36% – ” ” 1929.

    The government had to run deficits to recover from each depression.
    I'd like to add on this doesn't include the recent clinton surplus.
    How Bill Clinton's Balanced Budget Destroyed The Economy - Business Insider
    The private sector cannot survive in negative territory. It cannot go on, year after year, spending more than its income. It is not like the US government. It cannot support rising indebtedness in perpetuity. It is not a currency issuer. Eventually, something will give. And when it does, the private sector will retrench, the economy will contract, and the government's budget will move back into deficit."
    When the government collects taxes it takes dollars out of the economy. It also appears to take dollars from the economy when it sells bonds. But unlike taxpayers who lose their purchasing power, bond buyers get bonds and keep their purchasing power. The deficit spending adds new dollars to the economy as if they had been “printed”. Note these key points:

    Unlike reluctant taxpayers, bond buyers want the bonds to use as savings accounts to safeguard their dollars and earn interest.
    The government redeems the bonds when they come due, but it can roll over or sell replacements indefinitely.
    The total of all dollars the federal government has created this way since 1790 is called the federal debt which never has to be repaid while the nation exists. Attempts to reduce the debt significantly never worked because they took dollars from the economy that it needs to operate and grow.
    Because the government can create dollars, it can never run out of them and cannot be forced into bankruptcy.
    The federal government is not like families or companies because only it creates new dollars that stay in the economy unless it removes them by running surpluses.
    This explanation is generally correct, but the details of how the government creates new dollars are more complicated.
    I look forward to some interesting discussion.
    “I have never seen a thin person drinking Diet Coke.” - Donald Trump

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    re: Explaining Why Federal Deficits Are Needed[W:5330]

    Cont:
    Despite the budget surplus, interest rates were higher. And the surplus provided no protection of the coming slump. And if anything, it just weakened the most brittle part of the economy: households.

    Furthermore, there is a pattern of this.

    Japan ran a budget surplus in the year right before its economy went into terminal decline...

    So while Clinton will be remembered nostalgically tonight, for both the performance of the economy and his government finances, they shouldn't be remembered fondly.
    There is absolutely no reason for the united states to "balance the budget."
    “I have never seen a thin person drinking Diet Coke.” - Donald Trump

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    re: Explaining Why Federal Deficits Are Needed[W:5330]

    “I have never seen a thin person drinking Diet Coke.” - Donald Trump

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    re: Explaining Why Federal Deficits Are Needed[W:5330]

    The Clinton surpluses were a good thing precisely because of the fact that the Private sector was overspending.... And what happens when you lose control of the debt (like Japan has, and many many countries are close to doing) and you end up at 1000% debt to GDP? You think an economy can keep going like that?

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    re: Explaining Why Federal Deficits Are Needed[W:5330]

    Quote Originally Posted by Ellis_G View Post
    The Clinton surpluses were a good thing precisely because of the fact that the Private sector was overspending.... And what happens when you lose control of the debt (like Japan has, and many many countries are close to doing) and you end up at 1000% debt to GDP? You think an economy can keep going like that?
    The Clinton surpluses were followed by a recession. The private sector wasn't overspending; people were playing the stock market, especially dot.com stocks. Those surpluses happened because people were paying taxes on their stock gains; then, the dot-com stocks tanked, because there was no business behind them that could justify their price.
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    re: Explaining Why Federal Deficits Are Needed[W:5330]

    Quote Originally Posted by JohnfrmClevelan View Post
    The Clinton surpluses were followed by a recession. The private sector wasn't overspending; people were playing the stock market, especially dot.com stocks. Those surpluses happened because people were paying taxes on their stock gains; then, the dot-com stocks tanked, because there was no business behind them that could justify their price.
    That doesn't mean that his surpluses were a bad idea.

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    re: Explaining Why Federal Deficits Are Needed[W:5330]

    Quote Originally Posted by Ellis_G View Post
    That doesn't mean that his surpluses were a bad idea.
    Well, there aren't many circumstances in which it's a good idea for the government to remove more dollars from the economy than it spends in. Certainly not in the U.S., where we run trade deficits that almost every other country takes advantage of. If you go back to the supply-side thread, we started talking about demand leakages and injections, and our trade deficit is a large, consistent leak. We were still running large trade deficits while the government was running a surplus - all of those dollars, on both ends, came out of private sector pockets. A similar thing happened in the 2000's, when homeowners were borrowing heavily against their home equity. Recessions followed both times.
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    re: Explaining Why Federal Deficits Are Needed[W:5330]

    Quote Originally Posted by David_N View Post
    I encourage everyone to look at this with an open mind.
    Explaining Why Federal Deficits Are Needed - New Economic PerspectivesNew Economic Perspectives

    I'd like to add on this doesn't include the recent clinton surplus.
    How Bill Clinton's Balanced Budget Destroyed The Economy - Business Insider



    I look forward to some interesting discussion.
    The debt rose every year under Clinton and we've been running deficits every year since 2008 and the Nations economy is still on life support 8 years later. ....with some exception.

    Here in Texas we've seen a unprecedented influx of Americans move into our Cities and the surrounding areas and a unprecedented influx of private sector investment to go along with it

    The State of Texas and the cities that have seen their populations grow exponentially didn't have to go into debt to fund this growth. We just had to adhere to the very supply side strategies MMTers say dont work

    People respond to incentives. Its a axiomatic truth that blows the minds of your average MMTers.

    Also the existence of Texas's multibillion dollar rainy day fund hasn't had any negative impact whatsoever.

    Make no mistake, MMT is just a very poorly veiled attempt to sell off destructive Progressive economic initiatives as something new. Its not even a clever attempt.

    Its monetary gibberish used to perpetuate Fiscal initaives that grow the debt and Govt at the expense of the economy and the Federal budget

    So. Should Japan start spending ? Should Venezuela start spending ?

    Should the State of California start spending ? Should Detroit start spending ? Cities can sell bonds to deficit spend BTW
    " If no one among us is capable of governing himself, then who among us has the capacity to govern someone else ? "
    Ronald Reagan

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    re: Explaining Why Federal Deficits Are Needed[W:5330]

    Oh that's sweet. You want others to have an open mind while you do not. Typical liberal hypocrisy.

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    re: Explaining Why Federal Deficits Are Needed[W:5330]

    Quote Originally Posted by Moderate Right View Post
    Oh that's sweet. You want others to have an open mind while you do not. Typical liberal hypocrisy.

    Yes, keep an open mind, but if you disagree with us you're a idiot, dont understand accounting, the economy, how Banks work, etc, etc.....
    " If no one among us is capable of governing himself, then who among us has the capacity to govern someone else ? "
    Ronald Reagan

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