Credit Growth Drives Economic Growth, Until it Doesn’t

imagep said:

The post WWII boom was caused by servicemen returning from the war with lots of money in their pockets, government veterans programs for purchasing housing and education, and a desire to return to normalsy after 15 years if depression and war.

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Government expenditures dropped by 75%. You are additionally leaving out that, due to rationing, the American people had effectively undergone forced savings for four years. Nor does "desire for normalcy" drive economic results. If that were true, we would be back at 2.5-3% growth today.

And - the highlighted? That's called "savings"

Currency doesn't actually store wealth. Its an accounting tool. It's created out of thin air.

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That is incorrect - currency acts as a storage of value. Saying "oh, it's created out of thin air!" doesn't change that basic function of money.

What? If everyone consumed less than we produce, we would reduce production to match consumption.

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:shrug: this is incorrect, as is demonstrated by expanding production in countries with positive and high savings rates.

For example: old US Savings Rates:

How do you "store" haircuts? How do you store milk?

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In the form of money.

Wait - are you really forgetting that some individuals can produce goods and services more easily and at less expense than others?

You can save money, you can't really save wealth (long term).

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Pretty sure I can keep a hold of property, guns, precious minerals, and - indeed - money. Now the relative value in trade of all these things can fluctuate - sure. That doesn't make them value-less (unless people like David_N ever get in charge of the theoretical printing presses, in which case the money will probably become so, though the guns and land might become worth quite a penny)

When individuals save, they typically do it in bank accounts. Businesses then borrow that money.

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I thought you just said that they didn't?

imagep said:

Currency doesn't actually store wealth. Its an accounting tool. It's created out of thin air.

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:lamo

Any object of value to someone else stores wealth. Currency is a partial measure of one's wealth through goods and services that have already been exchanged. It allows indirect exchanges to occur, unlike in a barter economy. That isn't created out of thin air.

cpwill said:

Government expenditures dropped by 75%. You are additionally leaving out that, due to rationing, the American people had effectively undergone forced savings for four years. Nor does "desire for normalcy" drive economic results. If that were true, we would be back at 2.5-3% growth today.

And - the highlighted? That's called "savings"

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Returning military people were dis-saving. It was this dis-savings which was generating demand which caused the boom.

That is incorrect - currency acts as a storage of value. Saying "oh, it's created out of thin air!" doesn't change that basic function of money.

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Money itself has no intrinsic value. If US dollars couldn't be used in trade, would you desire to have them? What is the value of something that isn't desired?

Money is just a tool that we use for accounting. It's not wealth, even if it is used to measure wealth and even if it is used in trade. Think of dollars as "points".

:shrug: this is incorrect, as is demonstrated by expanding production in countries with positive and high savings rates.

For example: old US Savings Rates:

View attachment 67201828



In the form of money.

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That's not really storing wealth. Thats exchanging wealth for points. You cant drink those points, if you want your wealth (milk) back you have to exchange your points for wealth. If there is no milk to be had at the time you desire to trade your points, then you are **** out of luck - your points didn't store any milk.

Now lets say that we had two countries which were identical in every way, except that one had a one million units of it's own self issued currency, the other had ten million units of it's own self issued currency. The fact that one country had issued more points than the other makes no matter when it comes to the amount of real wealth that they have, which we have already determined is equal.

If you believe that money is wealth, then we could just print up a **** ton of wealth. Of course that is absurd, so see what I mean? Money isn't wealth.

David_N said:

You clearly don't understand the article if the first statement that comes to your mind is abolishing taxation or borrowing.

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At the very least, ttwitt7864 was trying to joke in a blog.

Show patience, it's a debate forum and (some) people think humour/sarcasm is an adequate comment. ...

David_N said:

A very interesting read that makes a whole lot of sense.
Credit Growth Drives Economic Growth, Until it Doesn’t - The Daily Reckoning

^ The last sentence is the most important thing people need to understand.

This was written in 2011, but it's still incredibly relevant.

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You just love the idea of debt being controlled by the gov't, don't you... We need to get FAR away from the gov't being the only entity to be able fund our addiction to debt and our business needs for capital and start being responsible for our own debt and needs. Debt creates SHORT TERM prosperity, but long term destruction as it artificially accelerates inflation. The end game of your debt-based society is a situation where debt is taken on to keep servicing debt. It's an unsustainable positive feedback loop. As you borrow more, you need to borrow more in order to keep paying for the cost of what you borrowed. Eventually the machine self-destructs. What we need is a long term plan of saving/investing to make the People the ones with the money to fund business and the People being the ones to benefit from that. Yes, it demands a short term drop in demand as money is saved and invested, but the goal should be to have long term wealth and as that long term wealth starts getting spent, we will see the demand side return. It's a long term solution, but it's one that is sustainable, whereas your concepts have built-in long term self-destruction built into them....

imagep said:

Savings is never a driver of an economy. Savings is by definition consuming less than what you produce. Now why in the world would we (in aggregate) keep producing, if we arent utilizing what we are producing?

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One can also say that if we consume too much with no savings then there is no money left for investment.

How do we develop new technologies, new products and therefore new jobs? And if we don't create new jobs how do we employ the people coming onto the job-market.

And if they remain idle, they don't consume and the economy slows down to a crawl.

The economy is not just an accounting system. It is an accounting system perpetually moving, meaning if the number of new jobs are not similar to the number of new individuals seeking a job, then long-term unemployment happens.

Savings happen automatically in a country, because people rarely consume ALL that they earn. In fact, they prefer to go into debt than put the money away - that is, they purchase a house by mortgaging, the payments of which represents the money they would have otherwise "saved".

Because by doing so they are creating their future net-worth (which is wealth minus debt) ...
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Lafayette said:

One can also say that if we consume too much with no savings then there is no money left for investment.

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Money is never an issue. Our money supply automatically expands to meet the demand. We don't even need to save money for banks to lend, they don't need our savings to lend, they effectively create the money that they lend. Besides, the federal reserve insures that our banking system is always liquid, if there wasn't enough money to fund consumption and investment both, then the federal reserve would simply expand our money supply so that it is adequate.

We have to remember that there is never a fixed amount of money. Money isn't in limited supply. Money isn't scarce in our macroeconomy (although it seems to be a little scarce in my microeconomy).

There are two things that restrain investment, the first is demand - there has to be adequate demand to justify business investment (and since savings reduces demand, too much savings can actually stifle investment). The second thing is resources, both human and natural. Unless we are at or right near full employment, then resources aren't really an issue, especially when we live in a global economy and have access to third world labor.

How do we develop new technologies, new products and therefore new jobs? And if we don't create new jobs how do we employ the people coming onto the job-market.

And if they remain idle, they don't consume and the economy slows down to a crawl.

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Unfortunately, most new products are no longer additions to our basket of goods, they are alternative products or substitutions, often totally obsoleting other products. If I invented a better smart phone today and it sold like crazy, most of my sales would be at the expense of apple and other smart phone producers. If my smartphone had a laser pointer built into it, then the sales of laser pointers would likely plummet. The smart phone has already replaced or reduced the need for: Pencils, notepads, home phones, pagers, PDAs, portible computers, cameras, jamboxes/ipods, rolladexes, address books, stand alone GPS sytems, hand held calculators, phone booths, fax machines, flashlights, video game consoles, tape recorders, music CD's, remote controls, etc.

The economy is not just an accounting system.

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No, but money is.

It is an accounting system perpetually moving, meaning if the number of new jobs are not similar to the number of new individuals seeking a job, then long-term unemployment happens.

Savings happen automatically in a country, because people rarely consume ALL that they earn. In fact, they prefer to go into debt than put the money away - that is, they purchase a house by mortgaging, the payments of which represents the money they would have otherwise "saved".

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Sure. So we really shouldn't focus on savings. Savings is good for the individual, but terrible for our economy. Ever heard of the Paradox of Thrift (aka Paradox of Savings)? https://en.wikipedia.org/wiki/Paradox_of_thrift

thenotorious said:

:lamo

Any object of value to someone else stores wealth. Currency is a partial measure of one's wealth through goods and services that have already been exchanged. It allows indirect exchanges to occur, unlike in a barter economy. That isn't created out of thin air.

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Sort of, but not really. How much wealth did Confederate currency store? It was used as a means of trade for a while, then it became valueless. The wealth of the confederate south was never it's currency, it was it's land and people and what the people produced.

Money is just a tool we use for accounting purposes and for trade. Yes, I realize that it is often defined as a "temporary store of value", but it's not literally storing value, it is representing value. Only a fool would look store great fortunes for long periods of time in currency. Currency in itself isn't productive, although it can be traded for something that is productive. Likewise, it doesn't keep us warm, protect us from the rain, or transport us. It has to be exchanged for something else to have any real value to us at all.

Back in the days that money was gold, it was valued for it's intrinsic value, in addition to being an accounting unit and a means of trade. We are no longer in those days. Money is now created from mixing a little thin air with some debt and a sprinkles of good faith.

THE LOAN-SECURITIZATION PROCESS

imagep said:

Money is never an issue. Our money supply automatically expands to meet the demand. We don't even need to save money for banks to lend, they don't need our savings to lend, they effectively create the money that they lend.

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Sorry, but I must disagree.

The way the money-supply is managed by the Fed (which is run by the bankers themselves, I might add) is to adjust its reserves according to the economic need. Which is why, when the countries banking-system was awash with Toxic Waste loans, the Fed "bought that bad debt", thus allowing the banks to borrow more money that it re-loaned to the public. (Which, in a major recession, was no great success - but it helped keep the banks solvent.)

Which is/was the best possible way to handle the Toxic Waste Mess avoiding outright failure of the American banking system. But, the Fed did the private banksters a favor. The banks paid fines but those fines just come off the bottom-line. They do nothing to correct Bankster-Behaviour, which was and still is the problem.

Only "perp-walks and jail-time" can correct behaviour of crooks, because the Commercial Banks were deeply-dishonest having frauded bank subprime loans, which then were securitized by themselves (Investment Banking departments). What?

Yes, since the Glass-Steagal Act of 1932 that separated Commercial from Investment Banking had been deposed by Clinton (upon the advice of Robin Rubin who has since gone back to ... uh, banking); the Commercial part of the bank (front-office) handled mortgaging and the Investment part (back-office) handled the securitizing of the loans. That is, packaging them (mixing both good and bad to hide the bad-loans), getting the Triple-A rating, then reselling them into investor markets (as "prime" securitized debt-instruments.)

Which is why Bernie and other Dem Senators have called for the return of the clear independence of Commercial and Investment Banking (that is, in separate banking entities). Of course, Yellen will be forced by the private-bankers at the head of the various Fed-divisions to not rush to such a conclusion. After all, they had fought tooth-'n-nail to revoke Glass-Steagal.

(Especially if the Replicants win the office of PotUS, whereupon if "the Dunderhead" gets elected and does not do their bidding, they will squeeze his indebted businesses.)

After all, their future jobs and emoluments are dependent upon profits, profits, profits.

MY POINT?

American banking - as confected today - is a rip-off. The banksters are not only the ones who mounted the fraudulent sub-prime loans, but the higher-ups who allowed them to be packaged and resold to the world as "Triple-A rated". (They "didn't know"? Oh, yes they did!)

Which is a serious crime for which BigBanksters were slapped on the wrist with fines - but nobody went to jail ...
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imagep said:

Sort of, but not really. How much wealth did Confederate currency store? It was used as a means of trade for a while, then it became valueless. The wealth of the confederate south was never it's currency, it was it's land and people and what the people produced.

Money is just a tool we use for accounting purposes and for trade. Yes, I realize that it is often defined as a "temporary store of value", but it's not literally storing value, it is representing value. Only a fool would look store great fortunes for long periods of time in currency. Currency in itself isn't productive, although it can be traded for something that is productive. Likewise, it doesn't keep us warm, protect us from the rain, or transport us. It has to be exchanged for something else to have any real value to us at all.

Back in the days that money was gold, it was valued for it's intrinsic value, in addition to being an accounting unit and a means of trade. We are no longer in those days. Money is now created from mixing a little thin air with some debt and a sprinkles of good faith.

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:lamo If wealth does not store value, then I'd expect you to not work for it. I'd expect you to not be happy to win a million dollars. I'd expect you to give all the money you do earn away as it holds no value to you. Seeing as none of those three things are probably true, your whole point isn't really accurate.

I understand what you are trying to say, and you aren't a hundred percent wrong.

However though, money, like every object follows a law of supply and demand. The example you gave with the Confederacy isn't really a viable example to credit your hypothesis. Like everything, money can change value via people's willingness to buy it. The Confederacy was failed experiment akin to me buying some toy dollar bills from Wal-Mart and pretending they have value. Ok, maybe not that similar, but I hope you get my point. You are right in a sense that it represents wealth. In knowing that though, you have to understand what the definition of wealth and storing is and how they are both related. It's like you having a 100 dollar gift card. There's inherent wealth in that. If that store was to close and that card become valueless, then there is no wealth in that. Depreciation is a thing, and under certain circumstances, it can be instantly absolute like that, however that does not mean wealth doesn't exist where the potential for depreciation does as well.

And at the very least...even if that wasn't the case, currency would still hold even minimal value. Especially, Confederate currency, because someone, somewhere needs something to wipe their *** with and would give you something in exchange to do so.

More realistic though, money has it's usage like everything else used by people. It's to make transactions more efficient for people, but that efficiency isn't equated to it's value, which is what I think that's what you are trying to reason with as to why money doesn't equal wealth. While you are right about the first part, not the latter as it pertains to wealth, because like I said, as long money's value will be related to the goods that can be bought and sold for, it counts as wealth.

thenotorious said:

:lamo If wealth does not store value, then I'd expect you to not work for it....

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We are talking about money, not wealth.

Again, we need to stop thinking of money as wealth. It's just a point system that we use to account for wealth.

If Bill Gates owns $61 billion dollars worth of stock, he doesn't have $61 billion dollars, he has $61 billion dollars worth of stock. If he sold all that stock,he might then have $61 billion dollars, but he would no longer own stock. His dollars aren't wealth themselves, although he can convert them to wealth. You could say that those dollars are a claim on wealth though. His $61 billion dollars can be thought of as a claim to whatever it is he wanted to purchase. If he then spent is $61 billion dollars on land, he would own $61 billion dollars worth of land, but he wouldn't have any dollars.

Lafayette said:

Sorry, but I must disagree.

The way the money-supply is managed by the Fed (which is run by the bankers themselves, I might add) is to adjust its reserves according to the economic need. Which is why, when the countries banking-system was awash with Toxic Waste loans, the Fed "bought that bad debt", thus allowing the banks to borrow more money that it re-loaned to the public. (Which, in a major recession, was no great success - but it helped keep the banks solvent.)

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This is incorrect. Central banks quickly gave up attempting to control the money supply in this fashion years ago, because it was nearly impossible, plus they lost control of interest rates. Today, the Fed (like other central banks) supplies any reserves that are needed by banks; in doing so, they can control interest rates, which is the main tool in today's monetary policy kit.

Also, banks do not borrow money and re-loan it to the public. Banks create loans by expanding their balance sheets. The reason the Fed bought up bank assets was because a drop in the value of some of those assets (MBSs) left banks' capital accounts underfunded, so they were afoul of regulations - that's why they couldn't create more loans. When the Fed bought up bank securities for cash, banks were again on solid ground, capital account-wise.

cpwill said:

It is extremely important. Debt-Driven growth is like getting stronger by taking Speed. Sure, you're stronger for a short time, maybe (maybe you're just dumber), but there's a crash on the back-end of that. Debt is an unstable platform to base growth on.

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Debt is the only platform to base growth on. You cannot expand your economy by investing savings.

The only other way to grow is to run a trade surplus, and we aren't about to do that anytime soon.

All of our money is debt-based; but in the case of government-created money, at least the debt is illusory.

cpwill said:

Indeed. The problem is the same one that most Keynesians make - it assumes that wealth would not exist if the Federal Government didn't spend it.

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Keynesians think no such thing. Nor do MMTers.

cpwill said:

This seems to imply a new fun factor, however - the notion that the US Government faces no limit on its ability to borrow at affordable rates.

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There are, of course, practical limits to spending. There are not, however, limits to money creation. The Fed and Treasury control the interest that we pay on bonds, but there is no operational need to issue bonds at all, just a self-imposed legal need (which can be changed).

cpwill said:

It is extremely important. Debt-Driven growth is like getting stronger by taking Speed. Sure, you're stronger for a short time, maybe (maybe you're just dumber), but there's a crash on the back-end of that. Debt is an unstable platform to base growth on.



Indeed. The problem is the same one that most Keynesians make - it assumes that wealth would not exist if the Federal Government didn't spend it. This seems to imply a new fun factor, however - the notion that the US Government faces no limit on its ability to borrow at affordable rates.

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Wow !! That analogy is absolutely terrible !

imagep said:

We are talking about money, not wealth.

Again, we need to stop thinking of money as wealth. It's just a point system that we use to account for wealth.

If Bill Gates owns $61 billion dollars worth of stock, he doesn't have $61 billion dollars, he has $61 billion dollars worth of stock. If he sold all that stock,he might then have $61 billion dollars, but he would no longer own stock. His dollars aren't wealth themselves, although he can convert them to wealth. You could say that those dollars are a claim on wealth though. His $61 billion dollars can be thought of as a claim to whatever it is he wanted to purchase. If he then spent is $61 billion dollars on land, he would own $61 billion dollars worth of land, but he wouldn't have any dollars.

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That was a typo, I met money.

Anyways, I'm sorry, but you are wrong again. Money by very definition is wealth. You are trying to philosophize something to be something that it definitively isn't. The same analogy you use can be used for furniture, jewelry, vehicles..and money. As long as money has value in a marketplace as a resource and is traded for other resources, it has inherent wealth. That is simply an indisputable fact.

cpwill said:

It is extremely important. Debt-Driven growth is like getting stronger by taking Speed. Sure, you're stronger for a short time, maybe (maybe you're just dumber), but there's a crash on the back-end of that. Debt is an unstable platform to base growth on.



Indeed. The problem is the same one that most Keynesians make - it assumes that wealth would not exist if the Federal Government didn't spend it. This seems to imply a new fun factor, however - the notion that the US Government faces no limit on its ability to borrow at affordable rates.

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more mmter nonsense really.

the fact is there is a wall at which the government can't pay as it cannot collect enough taxes.
the fact that the continued spending bulge puts more pressure upward on the deficit.

this requires more money to be pulled from the private sector.
this overall means higher taxes on people and businesses therefore lowering
disposable income.

the long term trend is that the private sector will not be able to make up for the
lack of government responsibility in it's spending as it can spend faster than the private
sector can pay.

imagep said:

We left the gold standard a long time ago. Worldwide, the gold standard as had a 100% failure rate.

All US dollars are now created by credit, it's just the way it works. The system is rigged so that it can't collapse, unless we just want it to for political reasons.

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no it can collapse as soon as other people feel that the US is not being responsible in how it handles it's currency.
the dollar lives and dies on the perception that people have that it is worth something. we back that up by our economy
and the fact that the government will be honest in how it handles it's currency.

DUMB IS AS DUMB DOES

JohnfrmClevelan said:

This is incorrect. Central banks quickly gave up attempting to control the money supply in this fashion years ago, because it was nearly impossible, plus they lost control of interest rates. Today, the Fed (like other central banks) supplies any reserves that are needed by banks; in doing so, they can control interest rates, which is the main tool in today's monetary policy kit.

Also, banks do not borrow money and re-loan it to the public. Banks create loans by expanding their balance sheets. The reason the Fed bought up bank assets was because a drop in the value of some of those assets (MBSs) left banks' capital accounts underfunded, so they were afoul of regulations - that's why they couldn't create more loans. When the Fed bought up bank securities for cash, banks were again on solid ground, capital account-wise.

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You could not be more wrong. The Quantitative Easing is still going on here in Europe, done by the EU Central Bank.

Banks don't borrow money? They expand their "ability to make loans" with magic words? AbraCadabra?

How do they obtain more funds to loan? Print it? What do you think the FRB is for, and who sits on the regional FRB's if not members of the banking profession?

GOVERNMENT STIMULUS-SPENDING

The reason the FRB bought-up non-functional bank-assets (aka Toxic Waste) was to allow bank refunding to the legally required reserve ratio. All those bank "assets" bought were dud, thus allowing the banks to borrow more maintaining their reserve-ratio. That "trick" did not work all that well because the economy was still recuperating from the Great Recession, meaning LACK OF CONSUMER DEMAND. People are not fools - when the unemployment rate explodes they stop spending for fear "they're next to get chopped".

So the only fiscal-tool remaining in such an economic circumstance was Stimulus Spending by the government; which the Replicants in the HofR stymied as soon as we, the sheeple, gave them control in the 2010-midterms. This bit of idiocy (barely 37% of the electorate voted in 2010) was sufficient for the Replicants to shut-down completely any stimulus-spending.

The same spending with which Obama had spiked an exploding Unemployment Rate employment rate at 10% by passing ARRA-spending of $787B in 2009/10. Nonetheless, without further Stimulus-Spending, it has taken us 6 long, long, long years of suffering to finally start creating jobs again.

MY POINT

Were we ever stoopid! More dumb is nearly impossible!

The continued recession was the fault of the American electorate in 2010 to continue with a Democrat Congress. Which is the real historical-truth of our recent economic past.

You really need a political-history lesson in what happened since 2008 ...
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Lafayette said:

DUMB IS AS DUMB DOES



You could not be more wrong. The Quantitative Easing is still going on here in Europe, done by the EU Central Bank.

Banks don't borrow money? They expand their "ability to make loans" with magic words? AbraCadabra?

How do they obtain more funds to loan? Print it? What do you think the FRB is for, and who sits on the regional FRB's if not members of the banking profession?

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Money creation in the modern economy

Abracadabra.

BONFIRE OF THE VANITIES

JohnfrmClevelan said:

Abracadabra.

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First of all, I want to congratulate you for being the first, yes, the very first, on this forum who - in rebuttal - has actually researched the subject and mounted a contrarian view. Well done! We need more of it here!

Secondly, as regards the article you linked, which says this:

This article explains how the majority of money in the modern economy is created by commercial banks making loans.
• Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits.
• The amount of money created in the economy ultimately depends on the monetary policy of the central bank. In normal times, this is carried out by setting interest rates. The central bank can also affect the amount of money directly through purchasing assets or ‘quantitative easing’.

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You will also note the very last sentence in the above; the one that goes "The central bank can also affect ..."

Which is what I have been saying. QE took Toxic Waste debt off the books of Commercial Banks, and put it with the FRB (Central Bank). Thus, the CBs were able to adopt new-debt that they lent to consumers. As the theory goes, but did not work. Whyzzat?

Because the QE does not help all that much. It presumes that consumers/investors are eager to borrow in order to consume or enhance production. Which, ipso facto, presumes that the demand is there to justify QE; which is simply not so. The only action - on the part of any government - to enhance consumption is to assure that spending sustains Demand for goods/services. (That is, it helps put people back to work who Consume!)

I, as head of the FRB, would have left those effing banks with the Toxic Waste that they had created! Let them work it off in a long and excruciating period of less than normal profits - so that banksters would understand that (1) they do not only pay fines for their chicanery, but (2) teaches management that a long, long period of meager-profits is required for them to repair their damages caused. No more bonuses for a while!

So, one can understand why they were keen to engage QE. Because it benefited the banks where they once worked and prevented what I have just said above. Of course, they would also - after their job at the Federal Reserve District office - return to their well-paying jobs in banking!

Iow, we must treat them like the spoiled brats that they are! "Masters of the universe"? Me arse!

A BIT OF HISTORICAL REFERENCE

The book in which this phrase (in quotes above) was employed, written by Tom Wolfe, is titled "Bonfire of the Vanities".

The expression comes from a specific day in the history of Florence, Italy. Italy was riven by an epidemic of syphilis, which was thought to be the vengeance of God. It goes like this:

Bonfire of the Vanities
On this day in 1497, the Bonfire of the Vanities took place in Florence, Italy, as supporters of the Dominican priest Girolamo Savonarola burned thousands of objects deemed to be associated with vanity, temptation, and sin.

Artworks, books, cosmetics, dresses, mirrors, musical instruments and much more were burned. It was seen as a religious act, as a cleansing of the soul and a rejection of worldly pleasures. His bonfire took place on the day of the Mardi Gras festivities—traditionally a series of carnival celebrations beginning on the Epiphany and ending on the day preceding Ash Wednesday.

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cpwill said:

The problem is the same one that most Keynesians make - it assumes that wealth would not exist if the Federal Government didn't spend it.

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Bollocks to this notion. Keynes simply postulated the idea that stimulus-spending by government could reinvigorate Demand by creating jobs. The idea being that the unemployed that are reemployed would start spending more of their household income. Which is, in fact, a truism.

Besides, it has nothing to do with "Wealth", except that Net-of-tax Income unspent becomes Wealth, which (minus Debt) becomes Net Worth.

cpwill said:

This seems to imply a new fun factor, however - the notion that the US Government faces no limit on its ability to borrow at affordable rates.

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Can't make out what you mean by this.

The government "borrows" by selling T-Notes that are bought by the general public (including countries, like China, that hoard them). It "spends" by retiring T-Notes, buying them back, thus reducing the FRB's overall Debt. The FRB's overall debt is never paid, it just rolls-over. However, too much of it can spark inflation during a period of strong Consumption.

It is all a question of "balance" between all the factors, the purpose of which is to maintain a "stable" and preferably growing economy.

PS: If Alexander Hamilton ever met Trump he'd dismiss the Dunderhead as a "show-off" and little else ...

Typo: The continued recession was the fault of the American electorate in 2010 to continue with a Democrat Congress. Which is the real historical-truth of our recent economic past.

Should read: The continued recession was the fault of the American electorate in 2010 to not pursue with a Democrat Congress. Which is the real historical-truth of our recent economic past.
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ludin said:

no it can collapse as soon as other people feel that the US is not being responsible in how it handles it's currency.
the dollar lives and dies on the perception that people have that it is worth something. we back that up by our economy
and the fact that the government will be honest in how it handles it's currency.

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As long as Walmart takes the US dollar, the US dollar will have value. I can't see Walmart refusing to accept the US dollar any time soon, especially since their cash registers don't hold chickens and their credit card machine doesn't accept haircuts. And as long as my mortgage payment is denominated in US dollars, I will still have a need for them, so I will continue to trade my production in exchange for dollars.

Oh, but I get it. You are talking about "when the **** hits the fan". I'm not sure when that will be, or what would cause it. Maybe if a huge comet is headed towards the earth?

JohnfrmClevelan said:

Money creation in the modern economy

Abracadabra.

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That article still doesn't indicate what you think it does. Doesn't matter how many times I read it, it says the same thing each time.

Lafayette said:

Bollocks to this notion. Keynes simply postulated the idea that stimulus-spending by government could reinvigorate Demand by creating jobs. The idea being that the unemployed that are reemployed would start spending more of their household income. Which is, in fact, a truism.

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inches bridge of nose:

1. Keynes proposed a bit more than "simply" that.
2. Your claim of a truism is entertaining, because it makes the exact same error that was identified in the post you were replying to - assuming that the money would not exist, were not the government borrowing it and then spending it.

So long as Keynesians do not include a cost/benefit analysis of what the government crowds out when it gets the money to spend, they will continue to only be scoring one side of the ledger.

Can't make out what you mean by this.

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It's the idea that the United States government can borrow as much money as it likes at low interest rates ad infinitum. The article argues that we should grow the global economy by simply having our government borrow and spend "what is necessary" (again, forgetting that you are taking from somewhere else what you are then spending).

PS: If Alexander Hamilton ever met Trump he'd dismiss the Dunderhead as a "show-off" and little else ...

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Both men are/were pretty thin skinned, but Trump is in no way an intellectual match for Hamilton, who is commonly underrated as merely a particularly prickly Federalist.