tag:blogger.com,1999:blog-5524682876220396502.post8806764460503594772..comments2024-03-27T06:56:10.255+00:00Comments on Broad Oak Magazine: America's debt, the role of the State and the fight for survivalUnknownnoreply@blogger.comBlogger17125tag:blogger.com,1999:blog-5524682876220396502.post-54743711349044258892011-07-13T03:46:06.469+01:002011-07-13T03:46:06.469+01:00I dont see how govt debt depresses demand though.G...I dont see how govt debt depresses demand though.<br>Govt debt is a private sector interest bearing asset. It results in income to the private sector and therefore potentially increases demand, unless the income is just saved. It can never decrease demand however.<br><br>Now, there are obviously distributional issues. Most of the owners of govt dbet are very rich and they likely save their interest payments, but if domestically held govt debt was sent out to each American equally it would be about 250$/month per person. A significant number of people would spend ALL that 250 and it would result in quite a stimulus.Greghttp://www.blogger.com/profile/03139782404004492965noreply@blogger.comtag:blogger.com,1999:blog-5524682876220396502.post-16920639862928517782011-07-12T16:41:41.193+01:002011-07-12T16:41:41.193+01:00Greg, for me the significant thing about debt is h...Greg, for me the significant thing about debt is how a load of it depresses demand, either because we have either to pay more taxes to the government or more interest (and repay capital) to the banks, so there's less available for purchase of each others' goods and services. I take your point about who gets the interest, though foreigners and the Fed also get a lot of money on US public debt these days.Sackersonhttp://www.blogger.com/profile/17284329249862764601noreply@blogger.comtag:blogger.com,1999:blog-5524682876220396502.post-50453339586225224802011-07-12T00:20:30.026+01:002011-07-12T00:20:30.026+01:00Its not all interest earning to US. I pay interes...Its not all interest earning to US. I pay interest on my mortgage and receive it on my T Bill, as do over 90% of Americans. Banks receive interest from both but not the average Joe. Banks are NOT private institutions, they are public/private hybrids so its false to look at their interest earnings on loans as being strictly within the private sector. <br><br>Yes, if loans were operationally the same as you and ten of your friends lending me money, my interest payments would be income to you, but loans are not operationally that way.<br><br>Yes you are correct that private debt is much more likely to default, in fact public debt (in the US) cannot default, at least in terms of "inability to pay", it might default from "unwillingness to pay" but thats different.Greghttp://www.blogger.com/profile/03139782404004492965noreply@blogger.comtag:blogger.com,1999:blog-5524682876220396502.post-2368608974746009242011-07-11T22:44:42.227+01:002011-07-11T22:44:42.227+01:00Hey, Greg. Your standing offer cracks me up... But...Hey, Greg. Your standing offer cracks me up... But, no thanks!<br><br>Sackerson, yes, that's what I was thinking, encouragement of housebuying is different. Sort of a "desperate expedient," perhaps, but qualitatively different.<br><br>And RE your reply to Greg,<br><b>"it's all interest-earning, isn't it? Except the interest paid on private debt is higher, and the debt much more likely to be defaulted."</b><br>I don't know if there is more to it than that or not. But I'm writing about "debt relatives" -- federal debt relative to non-federal, and the inverse -- and these are highly significant ratios without doubt. You see it yourself, with "U.S. public debt as % of Total Credit Market Debt" turning up an "historic low" point... Changing the denominator to "the rest" of the debt (rather than *all* of it) emplasizes such differences.<br><br>Keen is wonderful.The Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.comtag:blogger.com,1999:blog-5524682876220396502.post-57176002555913641442011-07-11T20:43:51.230+01:002011-07-11T20:43:51.230+01:00Art: the way I separated it out was because the en...Art: the way I separated it out was because the encouragement of housebuying seems different to me from job creation or the provision of socially useful services. But you're right, there must be many other ways to do it.<br><br>Greg: it's all interest-earning, isn't it? Except the interest paid on private debt is higher, and the debt much more likely to be defaulted.<br><br>I'm considering buying Stev Keen's new book when it comes out in September (Debunking Economics II), because he has focused for a long time on the role of debt in economics and this is what led him to predict the present crisis.Sackersonhttp://www.blogger.com/profile/17284329249862764601noreply@blogger.comtag:blogger.com,1999:blog-5524682876220396502.post-40611631938179271232011-07-11T11:17:55.116+01:002011-07-11T11:17:55.116+01:00Very nice post. I must confess to skimming some o...Very nice post. I must confess to skimming some of it but I totally get your point here and agree.<br><br>One thing that I think needs to be done is a language change. Calling govt debt "debt" and private debt "debt:" is extremely misleading to most everyone. We need to pick one reference point (us) and stick with it. In relation to US private debt is debt (something I OWE) while govt debt is an asset or investment (something I can collect interest payments from). For the many who are confused on this I have a standing offer:If you think the two are equal you can take my $100,000 mortgage and Ill take your $100,000 T Bill. I havent found any takers yet.<br><br>Now this is not to say that our public debt can never be too high but it is saying that simply looking at a number, like 12 trillion , is insufficient. It must be looked at in relation to other factors like, average wages, unemployment levels, taxation levels, productive capacity going un utilized etc etc.Greghttp://www.blogger.com/profile/03139782404004492965noreply@blogger.comtag:blogger.com,1999:blog-5524682876220396502.post-58880022894518308632011-07-11T10:53:25.644+01:002011-07-11T10:53:25.644+01:00Sackerson,I'm examining debt again, thanks to ...Sackerson,<br>I'm examining debt again, thanks to you. I have two thoughts on your post, above.<br><br>1. You are right: there was a significant, historic low in 2007. I had completely missed it. Kinda makes the point, doesn't it?<br><br>2. I have been thinking about your approach, excluding (some) federal financial debt from the federal numbers. I see this makes a lot of sense. But for me, the trouble is there are many ways to break total debt down into pieces, and one needs more technical education than I have, to do it well.<br>ArtThe Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.comtag:blogger.com,1999:blog-5524682876220396502.post-65821043533925650692011-07-03T18:51:17.108+01:002011-07-03T18:51:17.108+01:00Thanks for the link to your source.I can see your ...Thanks for the link to your source.<br><br>I can see your reason for leaving out the GSEs. I see your internal consistency. As long as you are aware of it. (When I did a similar thing it was a mistake, but that was from my own lack of knowledge.)<br><br>I am all in favor of showing that the federal debt is low compared with private-sector debt. And I think there are great lessons to be discovered by looking at the history of the public/private debt ratio in the context of economic performance. But I do not think it productive to understate the federal debt number. <br><br>You refer to <a href="http://www.usdebtclock.org/" rel="nofollow">All those whirring government-debt-counting widgets on blogs.</a> Everybody knows the federal debt is $14T+. To be effective, I think a debt graph has to deal with it.<br><br>I don't mean to be critical of your work. I'm thankful for the opportunity to talk about these things. And I am thrilled to see I am not the only one working through them.<br>ArtThe Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.comtag:blogger.com,1999:blog-5524682876220396502.post-8981885655760757222011-07-03T15:03:45.698+01:002011-07-03T15:03:45.698+01:00P.S. My title for that graph may have misled, as i...P.S. My title for that graph may have misled, as it referred to total public debt yet gave Fed and State/local separately. Combined they look to be about 15% of total at end 2007.Sackersonhttp://www.blogger.com/profile/17284329249862764601noreply@blogger.comtag:blogger.com,1999:blog-5524682876220396502.post-83783803990310880562011-07-03T14:58:35.096+01:002011-07-03T14:58:35.096+01:00Hi ArthurianThe data source is/was the Z1 Flow of ...Hi Arthurian<br><br>The data source is/was the Z1 Flow of Funds info at http://www.federalreserve.gov/releases/z1/current/accessible/l1.htm<br><br>I downloaded to Excel and got the system to convert to % of total credit outstanding and that's what I got, but the "low" is at 2007. That graph also splits Fed debt from State/local government debt, so it's Fed-only at 10% of TCMDO.<br><br>Have just checked on that Fed site again, in case I'd made some spreadsheet error, but for 2007 we see TCMDO "All sectors" at $50043.2 bn and Fed liablity at $5122.3 bn which works out at 10.24% of the total.<br><br>I haven't included GSEs etc but deal with those elsewhere in the graphing, because I see those as part of my "house and home" category. <br><br>Have I misunderstood / misread?Sackersonhttp://www.blogger.com/profile/17284329249862764601noreply@blogger.comtag:blogger.com,1999:blog-5524682876220396502.post-49531180646955399552011-07-03T14:41:54.834+01:002011-07-03T14:41:54.834+01:00Sackerson,I am concerned about your third graph he...Sackerson,<br>I am concerned about your third graph here, which shows the federal debt reaching an "historic low" of around 10% of total debt. I think the graph understates the problem. (Also, I could not find your Treasury data source.)<br><br>Quickview: If the $14 trillion federal debt is 10% of total debt, then total debt must be around $140T. But that number does not stand up. Michael Hodges reports total debt at $57 trillion. FRED TCMDO (whicih comes from the Z.1 Flow of Funds) reports it at $52603.83 billion, $52.6 trillion. $14 trillion (if that number is right) is about a quarter of the Hodges and FRED numbers, not ten percent. Again, I don't know what the Treasury numbers show.<br><br>In my own work, I have <a href="http://newarthurianeconomics.blogspot.com/2011/07/minimizing-problem.html" rel="nofollow">misread the breakdown</a> of debt presented by the Z.1 tables.<br><br>Gene Hayward first brought this discrepancy to my attention <a href="http://newarthurianeconomics.blogspot.com/2011/04/three-graphs.html?showComment=1303653358620#c1901395661227304390" rel="nofollow">here</a>.<br><br>Using different source numbers, my graph #7 <a href="http://newarthurianeconomics.blogspot.com/2011/05/new-look-at-debt.html" rel="nofollow">here</a> shows the federal debt reaching a low around 20% of total debt.<br><br>ArtThe Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.comtag:blogger.com,1999:blog-5524682876220396502.post-71879107729034039802011-06-22T21:14:27.688+01:002011-06-22T21:14:27.688+01:00Hi, JB. By mirror image I did mean opposite, thoug...Hi, JB. By mirror image I did mean opposite, though it's not exactly so, but I take your point about the enormous expansion of the financial sector. Now what, eh?<br><br>Thank you very much for visiting.Sackersonhttp://www.blogger.com/profile/17284329249862764601noreply@blogger.comtag:blogger.com,1999:blog-5524682876220396502.post-85426361518141445272011-06-22T18:17:15.253+01:002011-06-22T18:17:15.253+01:00Sackerson -Facts, data, rational conclusions! Is ...Sackerson -<br><br>Facts, data, rational conclusions! Is this the internet, or have I wandered into an alternate reality?<br><br>I followed Art's link over. (Does that make this an Art link-letter?) This is a really good post.<br><br>One correction, and a comment.<br><br>The correction:<br><i>Oddly, from 1974 on, home and government debt are almost mirror images: . . . But it wasn't so before, when the two lines ran almost parallel. </i><br><br>Your eyes have deceived you. The two lines display contrary motion almost all of the time, even at a detail level. It's the <b>combined</b> line that roughly parallels total gov't before '74, because the down slope of gov't was so large.<br><br>The comment:<br><br>First, off, I totally agree with you about misallocation of resources, though I don't think of it as any kind of investment.<br><i>Having partially re-categorized the debt in a way that I hope you won't think too unfair, </i> <br><br>It's fair enough, perhaps, but there is a point that gets lost in this grouping, and that is the 6-fold (or so) increase in the percentage of finance sector debt.<br><br>This, is think, is more significant than household debt, per se, since it is a key enabler for the rent-seeking behavior of Goldman-Sachs, frex, and the (totally useless, IMHO) derivative market that dwarfs the the total output of world economies - also by a factor of about 6.<br><br>The fact that it's largely mortgage related isn't trivial, but it isn't the key. <br><br>In short, I think house and home, rather than financial tail-chasing, is a sub-optimal focus.<br><br>Lots of other nutritious thought food here, but this comment is already over-long.<br><br>Cheers!<br>JzBJazzbumpahttp://www.blogger.com/profile/07337490817307473659noreply@blogger.comtag:blogger.com,1999:blog-5524682876220396502.post-43301870373924094792011-06-22T17:58:59.779+01:002011-06-22T17:58:59.779+01:00It's not hard to see what happened, at least i...It's not hard to see what happened, at least in the US.<br><br>Since 1980, we reduced tax rates on the wealthy (mostly in the financial sector), and the average wage stayed constant, adjusting for inflation. Most blue collar wages have not even grown with inflation.<br><br>The only way to get ahead was either to have two working adults per house, or max our your credit, including mortgages. The interest then went to, guess who? It also severely hurt tax receipts. What would they be if all wages had grown with inflation?Paddingtonhttp://www.blogger.com/profile/07952088638231881617noreply@blogger.comtag:blogger.com,1999:blog-5524682876220396502.post-45409552562865685562011-06-22T15:17:02.834+01:002011-06-22T15:17:02.834+01:00Jim - yes.Arthurian - thanks for the lead.And than...Jim - yes.<br><br>Arthurian - thanks for the lead.<br><br>And thanks for your comments, both!Sackersonhttp://www.blogger.com/profile/17284329249862764601noreply@blogger.comtag:blogger.com,1999:blog-5524682876220396502.post-19279119904108549192011-06-22T10:08:38.436+01:002011-06-22T10:08:38.436+01:00Hi, Sackerson. Great graphs!! Definitely, private-...Hi, Sackerson. Great graphs!! Definitely, private-sector debt must not be ignored.<br><br>You refer to "fiat currency (and debt, which forms part of it)". And you ask: "is 'sound money' a (maybe the) precondition of a sustainable economy?"<br><br>Q: What is "sound" money in a fiat system?<br><br>A: In FRED, look at TCMDO/M1SL ... total credit market debt owed, relative to the quantity of spending money in circulation<br>(MZM is a debt-laden version of M1; there is no sense to compare MZM to TCMDO.)<br><br>Use the Historical Statistics to carry the relation back to 1916.<br><br>You will see that Debt-per-dollar (DPD) increases continuously, except:<br>1. during the entire presidency of FDR<br>2. just before the late 1990s boom.<br>3. after 2007.<br><br>A high level of DPD creates problems; reducing DPD solves problems.<br><br>For a fiat money system to be sound requires a fairly low and fairly stable ratio of debt to circulating money.The Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.comtag:blogger.com,1999:blog-5524682876220396502.post-41245843471055682252011-06-22T09:58:04.418+01:002011-06-22T09:58:04.418+01:00The issue is this - in order for there to be more ...The issue is this - in order for there to be more investment in the West in productive capacity, rather than in the Far East (broadly put, making iPods and plasma TVs in the USA not China), then the cheap imports must be curtailed. The only reason 'stuff' is made in the Far East is not only that they pay the labour a lot less than the West, but their standards of business are far lower. They have no health and safety laws, no environmental laws, workers rights are low.<br><br>Broadly put the West has exported its pollution and exploitation of labour to China, and reaps the rewards (cheap stuff) without having to pay the immediate consequences - polluted environment and people living in poverty.<br><br>I have always said the West is trying to have it both ways - it wants the good environment and worker protection, but it also wants cheap stuff. Something has to give. You either allow the cheap imports, in which case the home based industries die, and you end up where we are now, or you prevent stuff coming in that is not produced under the same rules as apply at home, in which case you pay more for goods, and we in the West have lower (but perhaps more stable) standard of living.Jimnoreply@blogger.com