The right hankers for a crisis (0.00 / 0)

because of the high probability of a fascist dictatorship emerging on the other side.

"What we need is another 9/11" and so forth.

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by: Paul Goodman @ Sat Jan 23, 2010 at 11:48:22 AM CST

The elites knew the Repubs couldn't destroy Social Security so they are going to get the Dems to do it for them ... (4.00 / 2)

Sad to say but the plan here is clear.  Touching Social Security and Medicare is impossible for the Republicans so they will get the Demopublicans to do it for them -

If you think the Health Care bill was a disaster wait until we see what Senator Conrad has arranged for us with his Debt Commission.

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by: mwfolsom @ Sat Jan 23, 2010 at 12:18:51 PM CST

It's "Catfood Commission" Not "Debt Commission" (4.00 / 3)

As the diary clearly demonstrates, the reality of debt and the rhetoric of "debt" bear no relationship.

Catfood, however, is irreducibly real.

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3

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by: Paul Rosenberg @ Sat Jan 23, 2010 at 13:09:07 PM CST

[ Parent ]

Conrad and Baucus (4.00 / 1)

Both Conrad and Baucus need to be dumped from their committee chairs (Budget for Conrad, Finance for Baucus).  Many of the problems in moving a decent Health bill revolved around Conrad's guy at the Congressional Budget Office, Elmendorff)

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by: David Kowalski @ Sat Jan 23, 2010 at 15:04:36 PM CST

[ Parent ]

The currency issuer is not financially constrained and doesn't need to borrow (3.00 / 4)

The reason that Versailles is wrong about the debt, and the public, and most progressives, is that they think that the US government needs to fund its spending with taxation or finance it with debt. This is totally in error. As monopoly provider of a non-convertible floating fx currency of issue, the US government is not financially constrained and needs neither to tax or borrow to fund its spending.

The only constraint is real. If the government issue too much currency in relation to real output potential, then inflation as excess money drives up prices across the board due to glut of money in relation to goods available for purchase. If the government issues too little, then recession and rising unemployment as the output gap widens, since there is a shortage of money in relation to goods available for purchase.

Ergo, the government must balance nominal aggregate demand with real output potential to achieve and maintain full employment and full capacity utilization, along with price stability. (See L. Randall Wray, Understanding Modern Money (1999), available at Google Books.)

As monopoly currency provider by constitutional mandate, the government has a constitutional prerogative that involves a corresponding responsibility to provide for the general welfare. It is the government's right and responsibility to provide and manage the correct amount of currency to balance nominal aggregate demand and real output potential through appropriate fiscal (currency provision) and monetary policy (interest rate management).

BTW, government debt issuance is unnecessary in the contemporary monetary system. The same thing can be accomplished directly by paying interest on bank reserves. (See L. Randall Wray,"Memo to Congress: Don't increase the national debt limit.")

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by: tjfxh @ Sat Jan 23, 2010 at 13:10:05 PM CST

You beat me to it (0.00 / 1)

I recently bought and am still reading that book, I think based upon an earlier post by you.  It's quite fascinating.

Thanks!

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by: jasonbox @ Sat Jan 23, 2010 at 13:57:50 PM CST

[ Parent ]

There's Also The Issue of Global Financial Pressures (4.00 / 1)

I fully agree re Wray's argument generally, so I'm glad you mentioned it.  I just didn't think it was necessary to make my point above, since it's valid whether or not one adopts Wray's perspective.  The lower the debt-to-GDP ratio, the greater the cushion one has to take on major obligations when absolutely necessary, regardless of one's understanding of the nature of ultimate constraints.

Things are stickier now than they were in the past, however, due to the growing vulnerability we face to global financial markets.  This can significantly increase the inflationary risks over what they would have been 30 years ago, say.

Yet another reason that "protectionism" should not be a dirty word.  Some protectionist strategies make enormous good sense, no matter what the dogmatists say.

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3

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by: Paul Rosenberg @ Sat Jan 23, 2010 at 14:20:08 PM CST

[ Parent ]

Inflationary risk? (2.00 / 2)

What inflationary risk? With an output gap of about 30% and U6 unemployment at 17.3% (Dec 09), and the pundits taking about permanent structural unemployment, the Fed at ZIRP and the yield curve flat. "Inflationary expectations" are bogus at this point, designed to curtail social spending and justify cutting back "unfunded obligations" (NOT) like SS, Medicare, and Medicaid - like the president is planning to do. This is all coming from the right wing propaganda.

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by: tjfxh @ Sat Jan 23, 2010 at 15:09:15 PM CST

[ Parent ]

Sorry For My Lack of Clarity (0.00 / 0)

I'm thinking of the US someday finding itself in the position of the Asian Tigers, back in the Tiger hunting season of '98.

This is not at all the same sort of thing as the fears being cooked up now, and I apologize for any confusion.

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3

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by: Paul Rosenberg @ Sat Jan 23, 2010 at 17:30:46 PM CST

[ Parent ]

No need to apologize, really (4.00 / 1)

We all slip into mainstream thinking because it is the established narrative in the prevailing universe of discourse. As cognitive scientist George Lakoff points out in The Political Mind, which all progressives should read, we need to change that, first in ourselves and then in others, instead of sabotaging ourselves by reinforcing opposition memes.

The Asian Tigers got into trouble because they needed dollars to defend themselves against a run on their currency when assets were withdrawn en masse. The US, being the world reserve currency issuer, can never be in this position.

Argentina defaulted on its debt because the debt was not denominated in its own currency. Zimbabwe experienced hyperinflation as a result of a supply shock when the white producers were forcibly disinvested and the government foolishly tried to combat rising prices due to excessive NAD by printing money instead of reducing NAD to available supply by taking the excess money out of the system through taxation, matching NAD with available supply.

None of these things is remotely possible in the case of the US. Any comparison like this is automatically bogus.

The idea that the US is running out money, as apparently his economic advisors have led the president to think, or can go bankrupt, become insolvent, or default on its own debt is pure fantasy. There is no reason that a government that is sovereign in its own currency would ever be financially embarrassed. It's like saying that a tournament is limited by the points available for the scoreboard, or the figures that can be typed into a spreadsheet.

(PELLEY) Is that tax money that the Fed is spending?

(BERNANKE) It's not tax money. The banks have- accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed.

All the talk about US sovereign debt problem is pure fantasy, regardless of rising CDS or agency threats of downgrades. This is all bogus, the result of gold standard hangover or willful deception to reinforce the neoliberal lock.

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by: tjfxh @ Sun Jan 24, 2010 at 00:36:07 AM CST

[ Parent ]

I think tjfxh and jasonbox are fu**ing with you (0.00 / 0)

I hope I can adequately explain why this is so, and why I will give these two troll ratings.

Tjfxh questions your assertion of "inflationary risk" after he reasonably explains:

As monopoly provider of a non-convertible floating fx currency of issue, the US government is not financially constrained and needs neither to tax or borrow to fund its spending.
The only constraint is real[wow, that's an economist's word]. If the government issue too much currency in relation to real output potential, then inflation as excess money drives up prices across the board due to glut of money in relation to goods available for purchase.

Emphasis added.

You reply in good faith to the above and his citing a presumed expert - L. Randall Wray, who you've heard of, but I never have - that, yes, government spending increases the risk of inflation, but this is irrelevant to the fact that hard data show over time that it has been GOP administrations, not the Democrats, who have been spending by increasing the nation's debt. As tjfxh says, governments take on debt because excess money drives up prices and increases inflation.

tjfxh responds to your good faith comment about inflation with gobbedlygook, adding a bit of telltale bullshit: "this is all coming from the right wing propaganda."

Your diary is excellent, and tjfxh thinks so too. tjfxh just doesn't want to let this hard, real data - showing that the GOP is the irresponsible spending party of debt - to go unchallenged.

Furthermore, from tjfxh's first post:

It is the government's right and responsibility to provide and manage the correct amount of currency to balance nominal aggregate demand and real output potential through appropriate fiscal (currency provision) and monetary policy (interest rate management).

That is, it is the government's right and responsibility to avoid inflation.

Acquiring debt is okay, in tjfxh's version of reality and in context of this diary. It is the GOP who acquire the debt. Debt is a way of spending without pumping too much currency into the economy and running the risk of inflation.

Problem is, the GOP just spend the debt in the wrong places - like corporate tax loopholes.

Those who cannot remember the past are condemned to repeat it.

George Santayana, The Life of Reason, Volume 1, 1905

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by: Michele Kelly @ Sat Jan 23, 2010 at 17:07:43 PM CST

[ Parent ]

Putting words in my mouth (0.00 / 1)

"As tjfxh says, governments take on debt because excess money drives up prices and increases inflation."

Sorry, but I didn't say that. I said that money creation is in excess only when nominal demand (spending power) exceeds real output capacity (ability of the economy to produce goods and services at full employment). It is deficient when unemployment is over 2% frictional unemployment of voluntary unemployment like people switching jobs, taking some time off, etc.

Michelle, I'm sure you are a good hearted person, but you really don't understand basic financial economics, or you wouldn't have written what you did. Please see my comment below and read Warren Mosler's piece. BTW, Randy Wray is an economics professor at the University of Missouri at Kansas City, and a chief contributor to MMT (modern monetary theory). He was kind enough to write an introductory book accessible to non-economists explaining these ideas that are so important for progressive policy-making.

Unless progressive understand how to "pay" for their policies, they will not be successful in implementing them against fiscal scold objections. The simple fact is that they do not have to be "paid for," since the government is the monopoly currency issuer. And, yes, there is a right amount of currency to issue (or withdraw). It's the amount needed to balance nominal aggregate demand (spending power) with real output capacity (ability of the economy to produce goods and services at full employment). The government issues currency by spending or reducing taxes, and withdraws it by increasing taxes and reducing discretionary spending (rather than than cutting essential programs).

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by: tjfxh @ Sat Jan 23, 2010 at 17:48:02 PM CST

[ Parent ]

Calling Bullshit (2.00 / 2)

Progressives need to wake up and realize that embracing the "fiscal responsibility" myth of the fiscal scold is aiding and abetting the opposition, a large part of which itself realizes that the fiscal responsibility myth is really all about limiting government spending on social programs. Where are the calls to cut military spending or put the banks into resolution if insolvency instead of the government recapitalizing them. They use the myth to suit their purposes and many progressives fall into the trap.

It's time to stop this self-sabotage and start call bullshit.

Progressive need to educate themselves. For starters, I'd suggest reading Warren Mosler's 7 Deadly Innocent Frauds, a draft of which is downloadable free here. It is extremely simple for anyone to understand and hits all the high points. A lot of the other writings and blogs about this are a bit difficult to understand unless one has a basic grasp of economics.

All this talk about "ballooning government debt,"" inflationary expectations," "sound money" and the like is based on the "fiscal responsibility" myth that is a hangover from the gold standard. It favors creditors, like the financiers that own the bulk of bonds. Those preaching this "fiscal responsibility" memeplex as their gospel, making it the established narrative (dogma) of the prevailing mainstream economic religion, regard unemployment as a tool for managing "inflationary expectations" by undermining the bargaining power of workers.

Since August 15, 1971, when Nixon closed the gold window, the "fiscal responsibility meme" based on the gold standard has been obsolete, but neither mainstream economics nor the political established narrative has been modified to reflect this dramatic change. In fact, it is being exploited to undercut the progressive agenda, and progressives are not only allowing this but also contributing to it in many cases.

Dick Cheney actually got it right when he said, "Deficits don't matter."  They don't, stated in absolute terms. They are only relevant in relation to their effect on the balance between nominal aggregate demand (spending power) and real output capacity (goods and services the economy is capable of producing). And neither does the national debt matter in absolute terms, when the sovereign government is the monopoly provider of a non-convertible floating fx currency of issue and the debt is denominated in that currency.

Note: In the commercial banking system the debt itself is simply the substitution of one asset for another (Treasuries for bank reserves). Spending transfers reserves of the Treasury account, created by the Fed, to reserves at the banks where the Treasury checks are cashed. The Treasury securities issued to offset the debt just switch these bank reserves from demand deposit of the banks to time deposits of the banks, which nets to zero and has no effect other than interest accruing, also created as an addition to bank reserves by the Fed. However, the interest on national debt, like spending, adds to non-government net financial assets and affects nominal demand.

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by: tjfxh @ Sat Jan 23, 2010 at 17:28:32 PM CST

You're not criticizing Progressives, you're criticizing (0.00 / 0)

Conservative Democrats and Republicans.

I think you throw economic analysis at this diary in an attempt to either discredit it or to obscure the basic thrust: The article clearly shows, with straight-forward hard data, that the GOP has been historically a party of irresponsible debt growers for the benefit of the upper one percent.

You don't like this diary because it is a direct hit, a frontal assault on GOP long-standing rhetoric - by god it's so old, can't you come up with something new? - wrong characterization of the Democrats as the party of big government and tax and spend.

Thanks, but no thanks.

Those who cannot remember the past are condemned to repeat it.

George Santayana, The Life of Reason, Volume 1, 1905

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by: Michele Kelly @ Sat Jan 23, 2010 at 21:08:11 PM CST

[ Parent ]

No, Michelle, I am criticizing many progressives, too (4.00 / 1)

You don't get this, and I don't blame you. The propaganda is heavy, and progressives won't get it unless they educate themselves, which you apparently are still resistant to do.

The premise of this diary is that increasing the debt to GDP ratio is somehow fiscally irresponsible, but the GOP is much worse in this regard than the Democrats. "The most important measure of fiscal health for sovereign governments is not the size of the debt, but the debt-to-GDP ratio." This buys into the fiscal responsibility myth by implying that "excessive" debt in relation to GDP is somehow bad but the other guy is worse than us in piling it up.

This is Village thinking that is based on the gold standard convertible fixed rate regime that is no longer in place. Moreover, it bears little relation to fact. It just is not true. The US had a huge debt to GDP ratio after WWII, and Japan had and has a huger debt to GDP ratio, on the order of 300%, and had and is having no problem with inflation or rising interest rates. Nor is it having any problem with placing its debt. This is just a canard.

The fact is that government debt is largely irrelevant when it is denominated in the currency of issue under a non-convertible floating fx regime, because the government can meet its debt principal obligations as well as the interest with a few keyboard strokes that enters figures a spreadsheet. This is completely unlike households, firms and states in the US that are users of the currency and are therefore revenue constrained. Monetarily sovereign governments are not financially constrained and can always meet their obligations. There is no problem as long as they do not allow net financial assets to increase to the degree that the nominal aggregate demand exceeds real output capacity.

Arguing over who is more fiscally responsible is absolutely the wrong tack to be taking against the GOP. This line is forcing the Obama administration into tightening, which will raise unemployment and prolong the recession, making it likely that the GOP will win in 2012.

Moreover, Obama has already called for a deficit reduction commission to study what can be done about the "unfunded obligations" of SS, Medicare, and Medicaid. There are no "unfunded obligations."

This is self-sabotage resulting from ignorance of how the monetary system and the economy based on money creation works. Progressives are allowing themselves to be sucked into a "fiscal responsibility" argument that is loaded against them, and doing so completely unnecessarily when they should be educating themselves, the public, and Democratic politicians on the facts.

I am continually amazed at how many progressives fail to see how they are walking into a trap, and then refusing to educate themselves when it is pointed out to them.

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by: tjfxh @ Sat Jan 23, 2010 at 21:54:14 PM CST

[ Parent ]