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Balancing the Budget Wouldn't Be That Difficult

Banks actually fund loans by expanding their balance sheets. You get a loan for $1000; the bank marks up your account by $1000 (a bank liability) and holds your promissory note, worth something more than $1000, as their asset. $1000 of M1 money has just been created, and it will be extinguished as you pay down your loan.

When you spend, that's just a matter of banks marking accounts up and down, and settling up at the end of the day with reserves (or other methods).

Banks sometimes pay you a tiny amount of interest because your deposits are a cheap source of reserves. It's not because they are lending out your money.

Interest income is the primary way that most commercial banks make money. As mentioned earlier, it is completed by taking money from depositors who do not need their money now. In return for depositing their money, depositors are compensated with a certain interest rate and security for their funds.

Then, the bank can lend out the deposited funds to borrowers who need the money at the moment. The borrowers need to repay the borrowed funds at a higher interest rate than what is paid to depositors
. The bank is able to profit from the interest rate spread, which is the difference between interest paid and interest received.

 

I can provide a lot more authoritative sources that agree with me. I thought the BOE was about the highest authority one could find on the subject of banking.


 
I can provide a lot more authoritative sources that agree with me. I thought the BOE was about the highest authority one could find on the subject of banking.

You will never find a source that says banks don't lend out funds on deposit.
 
Every one of those very authoritative sources says just that. Read up.
Your sources are both irrelevant. Neither of them state anywhere that banks don't loan deposit assets.
 
Your sources are both irrelevant. Neither of them state anywhere that banks don't loan deposit assets.

Yes, they do. Three of the largest central banks all agree, banks create money from 100% credit. Not 90%, nor do they gather up "hard" money in order to lend it back out. I don't want to dump on your source, but it's not very authoritative, and it's just wrong.

What do you think happens behind the scenes when you deposit a paycheck?

Here's a guy from Standard & Poors if you don't like the central bank papers..

 
1. Workers would no longer pay a 7.65% FICA tax and employers would instead pay their share to the employees,
There is no guarantee of that. They'd almost certainly keep most or all of it. Employers generally don't voluntarily give their workers more wages out of the good of their hearts. Market forces drive wages down, which is why we rely on minimum wage laws.

But this is all fantasy. The reality is that the Republicans just passed a bill that:
  • Kicks millions of Americans off of health care and cuts millions of kids off of food aid
so that
  • Millionaires can get tax cuts.
It's sick.
 
Crack down on Medicare Advantage overpayments. A Center for American Progress estimate found that Medicare is at risk of overpaying [Medicare Advantage] plans between $1.3 trillion and $2 trillion over the next decade. Elon Musk, where are you? Oh yeah, you're ending cancer research and stopping life-saving aid overseas. Great.
Plus these plans are a rip off of those enrolled.
 
There is no guarantee of that. They'd almost certainly keep most or all of it. Employers generally don't voluntarily give their workers more wages out of the good of their hearts. Market forces drive wages down, which is why we rely on minimum wage laws.

But this is all fantasy. The reality is that the Republicans just passed a bill that:
  • Kicks millions of Americans off of health care and cuts millions of kids off of food aid
so that
  • Millionaires can get tax cuts.
It's sick.
Did you not read the link in your OP to the end?
My post #68 serves as a response to your above post.
Those who do not become part of the solution, ARE the problem.
 
No it wouldn’t

It soooo would.

In 2024, our deficit was $1.8 trillion, 6.4% of our GDP. Meanwhile, the economy grew by 2.8%. If you lop that $1.8 trillion off the top of GDP, our economy shrinks. Recession. And that's not even trying to calculate the secondary effects of that spending, which would be a further loss.
 
It soooo would.
It wouldn’t. We’ve done it before.
In 2024, our deficit was $1.8 trillion, 6.4% of our GDP. Meanwhile, the economy grew by 2.8%. If you lop that $1.8 trillion off the top of GDP, our economy shrinks. Recession. And that's not even trying to calculate the secondary effects of that spending, which would be a further loss.
Don’t reduce spending by that much. Increase revenue. Budget balanced. Like we have done before, and the economy boomed.
 
It wouldn’t. We’ve done it before.

Don’t reduce spending by that much. Increase revenue. Budget balanced. Like we have done before, and the economy boomed.

When, during Clinton's tiny surpluses? We went into a recession in 2000. And the boom was because of the dotcom boom, not because we ran tax surpluses. Tax surpluses were a result of the boom.

Every sustained attempt to pay down the debt has led to a recession or a depression. Every one.

Anyway, one point I was trying to make earlier was that no matter how you apportion taxation, it's generally a wash (to the economy), and you still need to run a deficit.
Finally, there is no advantage to running a balanced budget. The only time you would want to run a balanced budget or a tax surplus is when the economy was so incredibly hot that private sector debt increases were high enough to subsume both a trade deficit and household savings, plus a little more for growth. Even in the post WWII boom, when we ran trade surpluses, we seldom ran a budget surplus.
 
When, during Clinton's tiny surpluses? We went into a recession in 2000.
Dot com bubble burst.
And the boom was because of the dotcom boom, not because we ran tax surpluses. Tax surpluses were a result of the boom.
You claimed balancing the budget leads to recession. That is demonstrably false.
Every sustained attempt to pay down the debt has led to a recession or a depression. Every one.
Correlation =/= causation fallacy.
Anyway, one point I was trying to make earlier was that no matter how you apportion taxation, it's generally a wash (to the economy), and you still need to run a deficit.
No you don’t.
Finally, there is no advantage to running a balanced budget.
Not going in to debt is the advantage.
The only time you would want to run a balanced budget or a tax surplus is when the economy was so incredibly hot that private sector debt increases were high enough to subsume both a trade deficit and household savings, plus a little more for growth.
No. You always want to have a balanced budget except for emergency cases or recession.
Even in the post WWII boom, when we ran trade surpluses, we seldom ran a budget surplus.
Seldom. Still did at times. Thus disproving your categorical claim.
 
Not going in to debt is the advantage.

Let's start here. Countries with their own currencies do not go into household-type debt when they issue bonds. A future obligation to pay interest is not a burden when you just create new bonds to pay it with. And the bonds are never extinguished, they are simply rolled over. This is not a debt situation.

Conversely, we could just issue money directly, but that comes with its own issues, like trillions of dollars sloshing around in bank accounts looking for a return. Bonds are merely a different form of government liability that soak up those excess dollars and offer a bit of interest.

So assuming you see the difference now, the whole cost/benefit analysis of deficit spending changes. Unlike household debt, sovereign debt doesn't affect the country's ability to spend in the future. Tax surpluses and deficits also make zero difference to their ability to spend.

The country doesn't go into real debt, but financial assets are added to the private sector, and that has some effect. It should theoretically shake out in the FOREX market by lowering the value of the USD relative to other currencies, but this depreciation doesn't seem to happen the way we would expect.
 
Let's start here. Countries with their own currencies do not go into household-type debt when they issue bonds.
Not household debt, but debt.
A future obligation to pay interest is not a burden when you just create new bonds to pay it with.
Yes it is.
And the bonds are never extinguished, they are simply rolled over. This is not a debt situation.
Yes it is.
Conversely, we could just issue money directly, but that comes with its own issues, like trillions of dollars sloshing around in bank accounts looking for a return. Bonds are merely a different form of government liability that soak up those excess dollars and offer a bit of interest.

So assuming you see the difference now, the whole cost/benefit analysis of deficit spending changes.
No, it doesn’t change. Deficit spending is fine in emergencies or in a recession. Balanced budget or as close to deficit neutral should be the goal at all other times.
Unlike household debt, sovereign debt doesn't affect the country's ability to spend in the future.
Of course it does.
Tax surpluses and deficits also make zero difference to their ability to spend.
This is correct. We can just borrow and spend. But as we see now, this is u sustainable and has led to our credit rating being down graded. Eventually, the dollar will cease to be the world’s reserve currency.
The country doesn't go into real debt, but financial assets are added to the private sector, and that has some effect.
The country does and is currently in financial debt.
It should theoretically shake out in the FOREX market by lowering the value of the USD relative to other currencies, but this depreciation doesn't seem to happen the way we would expect.
It doesn’t shake out. As we have just seen with our credit downgrade. Some debt fine, but our current debt and continued explosive deficits are unsustainable.
 
Of course it does. [affect our country's ability to spend in the future]

No, it does not. There has never been a time where the government can't create whatever money it needs. The Great Depression, WWII, various financial crises, such as 2008, huge spending bills like during COVID - the money is always there, and it makes zero difference how big the national debt is.

This is correct. We can just borrow and spend. But as we see now, this is u sustainable and has led to our credit rating being down graded. Eventually, the dollar will cease to be the world’s reserve currency.

This goes against what you said one sentence ago, but OK. Is it unsustainable? We have been running federal deficits for most of our 250 years, and our economy is doing pretty well. Our credit has been downgraded before (it's still a very good rating), to zero practical effect. Investors understand that there is zero operational risk of default; the only risks are inflation and congressional stupidity concerning the debt ceiling.

The country does and is currently in financial debt.

Absolutely incorrect. Our government has their own currency, and they create that currency as they see fit. The fact that they exchange bonds for pre-existing reserves doesn't change what they are doing - treasury emits liabilities, and the government spends them into the economy, where they are held as assets by the private sector. No private sector-generated assets are used or tied up, no banks are involved except as intermediaries between bond buyers and the Treasury. Does the country need to repay anybody? No, the bonds themselves are the assets, much like currency.

It doesn’t shake out. As we have just seen with our credit downgrade. Some debt fine, but our current debt and continued explosive deficits are unsustainable.

So tell me where you think the line is. How much debt before it all implodes? Then explain how all of that happens.
 
Here is a little tidbit of useless information

Americans income tax information shows reported income of 15 trillion dollars.

The top 1% earned 25% of that. Now you know very well they aren't reporting it all but....

If we returned that top marginal tax rate pre-Reagan of 70% that would easily cover our 2024 deficit and have money left over.
 
No, it does not.
Yes it does
There has never been a time where the government can't create whatever money it needs. The Great Depression, WWII, various financial crises, such as 2008, huge spending bills like during COVID - the money is always there, and it makes zero difference how big the national debt is.
As our credit rating is downgraded, it becomes harder and harder to obtain loans. And it makes interest on existing debt higher.
This goes against what you said one sentence ago, but OK.
No it doesn’t
Is it unsustainable?
Yes
We have been running federal deficits for most of our 250 years, and our economy is doing pretty well. Our credit has been downgraded before (it's still a very good rating), to zero practical effect. Investors understand that there is zero operational risk of default; the only risks are inflation and congressional stupidity concerning the debt ceiling.
Downgraded credit rating makes Boeing money more expensive, which makes for higher interest payments, which sucks more dollars out of the US economy.
Absolutely incorrect.
Objectively correct.
Our government has their own currency, and they create that currency as they see fit.
The government can’t just print/create money indefinitely. There has to be something backing it.
The fact that they exchange bonds for pre-existing reserves doesn't change what they are doing - treasury emits liabilities, and the government spends them into the economy, where they are held as assets by the private sector. No private sector-generated assets are used or tied up, no banks are involved except as intermediaries between bond buyers and the Treasury.
This is incorrect.
Does the country need to repay anybody?
Yes.
No, the bonds themselves are the assets, much like currency.
No.
So tell me where you think the line is. How much debt before it all implodes?
I don’t know the specific dollar amount.
Then explain how all of that happens.
We lose the dollar as the world’s reserve currency, the value of the dollar implodes, and we are now Zimbabwe.
 
Yes it does

As our credit rating is downgraded, it becomes harder and harder to obtain loans. And it makes interest on existing debt higher.

Have we ever failed to sell treasuries? No. Do we control the interest rate we pay? Yes.

The government can’t just print/create money indefinitely. There has to be something backing it.

Why? How often have you cashed in your dollars for whatever is "backing" them?

We lose the dollar as the world’s reserve currency, the value of the dollar implodes, and we are now Zimbabwe.

Do you know why Zimbabwe underwent hyperinflation? It wasn't government spending. It was a steep drop in production, which happened when the govt. broke up the big, productive farms and redistributed that farmland to people who couldn't come close to matching the production. And there is a similar explanation for every example of hyperinflation you can think of - there is always a real economic problem that started the inflation, and a poor response by the government to ease the pain by printing money. That is not the story of America or any other large, diversified economy that's not in the middle of a war.

But we might see trade plummet with some accompanying inflation, because we just started a trade war with the rest of the planet. It will be interesting, for sure.
 
Have we ever failed to sell treasuries? No. Do we control the interest rate we pay? Yes.



Why? How often have you cashed in your dollars for whatever is "backing" them?



Do you know why Zimbabwe underwent hyperinflation? It wasn't government spending. It was a steep drop in production, which happened when the govt. broke up the big, productive farms and redistributed that farmland to people who couldn't come close to matching the production. And there is a similar explanation for every example of hyperinflation you can think of - there is always a real economic problem that started the inflation, and a poor response by the government to ease the pain by printing money. That is not the story of America or any other large, diversified economy that's not in the middle of a war.

But we might see trade plummet with some accompanying inflation, because we just started a trade war with the rest of the planet. It will be interesting, for sure.
This isn’t going to get us anywhere. We clearly disagree on reality, specifically basic economic and fiscal reality. We can’t keep adding to the debt indefinitely. It’s completely unsustainable as I have already outlined. A balanced budget is ideal in good times, and deficits are needed in bad times. That is without question. But to run deficits in good economic times is total fiscal stupidity, which is what our Republican “fiscal hawks” do every single time they are in power.
 
This isn’t going to get us anywhere. We clearly disagree on reality, specifically basic economic and fiscal reality. We can’t keep adding to the debt indefinitely. It’s completely unsustainable as I have already outlined.

You really haven't outlined anything. You just keep on repeating that it's unsustainable. But we have a fairly long history of debt and deficits that proves otherwise, and we have a very strong economy in spite of all this "debt." (Or maybe because of it.)

A balanced budget is ideal in good times, and deficits are needed in bad times. That is without question. But to run deficits in good economic times is total fiscal stupidity, which is what our Republican “fiscal hawks” do every single time they are in power.

That was Keynes, and when he said that the world was on a gold standard. Running surpluses had an upside then, because you were taking back your own gold-backed obligations in order to spend them later. That is no longer true under a fiat system. The only limits on fiat currency are inflation from too much demand and depreciation of your currency relative to everybody else's fiat currencies.
 
You really haven't outlined anything.
Of course I have.
You just keep on repeating that it's unsustainable. But we have a fairly long history of debt and deficits that proves otherwise, and we have a very strong economy in spite of all this "debt." (Or maybe because of it.)
No we don’t. The debt and deficits we have now are exponentially more than we’ve had in the past.
That was Keynes, and when he said that the world was on a gold standard. Running surpluses had an upside then, because you were taking back your own gold-backed obligations in order to spend them later. That is no longer true under a fiat system.
You can’t just print your way out of debt. That money has to have some sort of backing. The full faith and CREDIT of the US is what backs it, but as we get downgraded, they credit is diminished. Which is why ever increasing debt is not sustainable.
The only limits on fiat currency are inflation from too much demand and depreciation of your currency relative to everybody else's fiat currencies.
No it isn’t. The limits on fiat currency is the full faith and credit in the government behind it. As we get downgraded, it diminishes.
 
Here is a little tidbit of useless information

Americans income tax information shows reported income of 15 trillion dollars.

The top 1% earned 25% of that. Now you know very well they aren't reporting it all but....

If we returned that top marginal tax rate pre-Reagan of 70% that would easily cover our 2024 deficit and have money left over.

2022: Gross income = $26,231,750,000,000.000
2022: Adjusted Gross income = $14,751,820,000,000
2021: Gross income = $23,832,230,000,000.000
2021: Adjusted gross income = 14,722,247,000,000

The code change I've been suggesting would tax gross income.
 
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