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Credit Growth Drives Economic Growth, Until it Doesn’t

David_N

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A very interesting read that makes a whole lot of sense.
Credit Growth Drives Economic Growth, Until it Doesn’t - The Daily Reckoning
The single most important thing to understand about economics in the age of paper money is that credit growth drives economic growth.

Before the breakdown of the Bretton Woods international monetary system in 1971, there was a difference between money and credit. There no longer is.
Paper dollars and US treasury bonds denominated in paper dollars are just different types of government IOUs. When gold was money, the increase in the Money Supply (M1 and M2) had an extraordinary impact on the economy. Today, what matters is the increase in the total supply of credit.
At the end of 2010, $52.6 trillion of credit was outstanding in the United States. In 1971, the ratio of total credit to GDP was 150%. Now it is 354%. In other words, credit has been growing much more rapidly than the economy for the past four decades.
It is easy to understand how rapid credit growth facilitates economic growth. When credit is expanding, consumers can borrow and spend more and businesses can borrow and invest more. Increasing consumption and investment creates jobs and expands income and profits. Moreover, the expansion of credit tends to cause the price of assets such as stocks and property to increase, thereby boosting the net worth of the public.
Rising asset prices give the owners of assets more wealth (i.e. collateral) against which they can borrow still more. This cycle of expanding credit leading to increased spending, investment, job creation and wealth, followed by still more borrowing produces a happy upward spiral of prosperity….so long as it continues. Eventually, however, every credit-induced economic boom comes to an end when one or more important sector of the economy becomes incapable of repaying the interest on its debt.
^ The last sentence is the most important thing people need to understand.
In recent decades, the financial sector has expanded its debt much more rapidly than the non-financial sector, and therefore has played the more important role in creating economic growth. In 1971, the debt of the financial sector was equivalent to 12% of GDP. It hit 100% of GDP in 2005, peaked at 121% of GDP (or roughly $17 trillion) in 2008 and is now 96% of GDP. The sharp reduction in the sector’s debt after the crisis began in 2008 was made possible by the first round of Quantitative Easing, during which the Fed printed $1.7 trillion and used it primarily to buy assets from the financial sector, thereby allowing the financial sector to reduce its leverage.
Between 1971 and 2009, household sector debt increase from 43% of GDP to 98% of GDP (or to $13.9 trillion). Borrowing and spending by US households drove the US economy; and, as imports into the US exploded and the US trade deficit blew out to a previously unimaginable level, it also drove the global economy. Like every credit bubble, this one was fun while it lasted.
Over the last two years, the debt of the financial sector has contracted by $2.9 trillion (to $14.2 trillion) and the debt of the household sector has contracted by $443 billion (to $13.4 trillion). Offsetting that has been a $3 trillion increase in the debt of the federal government (to $9.4 trillion). Overall, total credit in the US increased by 0.4% or $203 billion (to $52.6 trillion). Like credit, economic growth in the United States has been essentially flat, increasingly by only 0.1% or by $19 billion between 2008 and 2010.

The $3 trillion increase in US government debt prevented a global depression over the last two years, but what sector of the economy will take on additional debt and drive the economy over the years immediately ahead?

Will it be the household sector? The corporate sector? State and local government? Will Fannie and Freddie or the ABS issuers come back from the dead? No, no, no and no.

The only sector of the US economy that can finance significant amounts of new debt is the federal government. Economic growth in the United States (and therefore, to a very significant extent, the world) will be determined by how much more the US government borrows and spends. Those who wish to slash government spending should bear that in mind.
This was written in 2011, but it's still incredibly relevant.
 

ttwtt78640

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Absolutely - we should eliminate all taxation and simply borrow our way to prosperity. ;)

That economic policy would seem to please both the left and the right; the right opposes (excessive?) taxation and the left wants (unlimited?) spending.
 

cpwill

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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.

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.

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

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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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.

Credit growth has always been the engine of economic growth for all advanced economies. When the growth stops, people deleverage/sell assets and stop spending. The government then has to fill the gap. Automatic stabilizers help take care of this for the most part. Do you understand money creation in the modern economy will? Bank loans create deposits, or governments spend past tax receipts. This is why I can't help but laugh at balanced budget lunatics who want to deprive the private sector of its only source of dollars. I mean, sure, the private sector could theoretically go further and further into debt each year with rapid credit growth, which actually has been the case, but it's unsustainable. Then the government slips back into deficit and we

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.

Credit growth has always been the engine of economic growth for all advanced economies for decades. When the growth stops, people deleverage/sell assets and stop spending. The government then has to fill the gap. Automatic stabilizers help take care of this for the most part. Do you understand money creation in the modern economy will? Bank loans create deposits, or governments spend past tax receipts. This is why I can't help but laugh at balanced budget lunatics who want to deprive the private sector of its only source of dollars. I mean, sure, the private sector could theoretically go further and further into debt each year with rapid credit growth, which actually has been the case, but it's unsustainable. Then the government slips back into deficit and we're square, and then we go back to blaming the government for saving us. It's a vicious cycle that always repeats itself. Modern money is credit. There's no getting around it. What Keynesian claims that "wealth" would not exist if the federal government didn't spend? The Us government really never faces any real constraints on spending that aren't self imposed. Rates on bonds are controlled by the government (consolidating fed + treasury) and the government can always credit accounts with keystrokes. The entire point of this article is that credit growth drives economic growth, and in order for growth to occur, either the private sector or government must take on additional debt. You seem to agree.
 

David_N

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Absolutely - we should eliminate all taxation and simply borrow our way to prosperity. ;)

That economic policy would seem to please both the left and the right; the right opposes (excessive?) taxation and the left wants (unlimited?) spending.

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

cpwill

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Credit growth has always been the engine of economic growth for all advanced economies for decades. When the growth stops, people deleverage/sell assets and stop spending. The government then has to fill the gap. Automatic stabilizers help take care of this for the most part. Do you understand money creation in the modern economy will? Bank loans create deposits, or governments spend past tax receipts. This is why I can't help but laugh at balanced budget lunatics who want to deprive the private sector of its only source of dollars.

You know, if you don't even know that they destroy / reissue dollars every year, maybe you shouldn't be accusing others of not understanding our monetary system?

Credit-Driven expansions are, as the OP highlighted, unsustainable. That's why its called a "bubble." Production growth and trade are the engines of economic growth. Debt is simply a dangerous tool that we overuse because we are bad at assessing risk across time.

I mean, sure, the private sector could theoretically go further and further into debt each year with rapid credit growth, which actually has been the case, but it's unsustainable.

Agreed. That's why they shouldn't - any more than the government should.

Then the government slips back into deficit and we're square, and then we go back to blaming the government for saving us. It's a vicious cycle that always repeats itself. Modern money is credit. There's no getting around it. What Keynesian claims that "wealth" would not exist if the federal government didn't spend?

:) The ones who depend upon handy little claims of benefit of government expenditure into an economy. That's why they refuse to include in their methodology a cost/benefit analysis that weighs the cost of where the government got its wealth against the benefit of what they are spending it on.

The Us government really never faces any real constraints on spending that aren't self imposed.

Perhaps you should take that up with Venezuela. That government no longer has the money to even afford to print money.

Rates on bonds are controlled by the government

No, they are influenced. They are controlled by the bond market. If rates on bonds were controlled by governments, then governments would never see their cost of borrowing increase.

(consolidating fed + treasury) and the government can always credit accounts with keystrokes.

Sure. Which takes from other holders of dollars, who will eventually tire of losing value.

The entire point of this article is that credit growth drives economic growth

Yes, and it's stupid. Credit growth can help to reallocate savings across an economy and help drive innovation, but it's not the driver, it's a tool.

and in order for growth to occur, either the private sector or government must take on additional debt. You seem to agree.

No, I disagree. You can claim that credit may = money, but that doesn't mean that it = wealth.
 

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You know, if you don't even know that they destroy / reissue dollars every year, maybe you shouldn't be accusing others of not understanding our monetary system?

Credit-Driven expansions are, as the OP highlighted, unsustainable. That's why its called a "bubble." Production growth and trade are the engines of economic growth. Debt is simply a dangerous tool that we overuse because we are bad at assessing risk across time.



Agreed. That's why they shouldn't - any more than the government should.



:) The ones who depend upon handy little claims of benefit of government expenditure into an economy. That's why they refuse to include in their methodology a cost/benefit analysis that weighs the cost of where the government got its wealth against the benefit of what they are spending it on.



Perhaps you should take that up with Venezuela. That government no longer has the money to even afford to print money.



No, they are influenced. They are controlled by the bond market. If rates on bonds were controlled by governments, then governments would never see their cost of borrowing increase.



Sure. Which takes from other holders of dollars, who will eventually tire of losing value.



Yes, and it's stupid. Credit growth can help to reallocate savings across an economy and help drive innovation, but it's not the driver, it's a tool.



No, I disagree. You can claim that credit may = money, but that doesn't mean that it = wealth.
A balanced budget means that the government is taxing more then it's spending, draining dollars from the private sector. A currency issuer cannot save in any meaningful sense of the word. The Clinton surplus helped accelerate the rapid accumulation of private sector debt and a decrease in personal savings.
Can you show me any expansions not driven by credit? Notice how you skipped over my point about money creation, which is interesting, since understanding money creation destroys your argument.
What leads to production growth will? Think about that for a second. Trade does lead to growth, but for every country running a trade surplus, another runs a trade deficit. That's fine and all if the government runs a deficit to fill the gap, but if not, that's a persistent drain of dollars. The only way for the private sector to continue is credit growth. Have you ever read anything from Steve Keen or Minsky?
You say the private sector "shouldn't" and that the government shouldn't either. This is where you illuminate your, understandable, misunderstanding of money creation in the modern economy. Go back to what I've said and think about your statement again.
Government spending does help economies growth, especially during a slump. That's not debatable.
"Cost/Benefit analysis."
The government gets its dollars from thin air, and if you want to use the "crowding out" argument, I can't help but laugh since we're already in a low interest rate environment with plenty of investment capital. I don't even see how a deficit can crowd anything out unless the economy is running hot with full employment. A deficit represents new dollars for the private sector, some to the foreign sector. Bonds are also an asset.
When you bring up Venezuela, you're talking about a socialist country that doesn't float its own currency, has rampant corruption, a broken exchange system, etc.. However, when it comes to keystrokes, there really is no limit.
"Influenced." The bond market cant really fight against the bond issuer/currency issuer. Greece isn't a currency issuer, so they actually do have a problem, but we don't, just like Japan.
What makes you think a government deficit takes from other holders of dollars? What a silly statement.
"Reallocate savings." Credit growth leads to an increase in private sector debt, what does this have to do with savings? Bank loans create deposits, what do you think credit growth refers to? It's the main driver of growth. That, or government spending. Key word: "DRIVER."
Credit does equal money. Money is credit. That's simply the way it works. I never claimed money is wealth, nor has anyone else.

(What do you know about sectoral balances? It's literally impossible for both the government and the private sector to not be in debt. If the government starts taxing more then it's spending, the private sector is being drained of dollars, and bank credit is all that's left.)
 
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A balanced budget means that the government is taxing more then it's spending, draining dollars from the private sector. A currency issuer cannot save in any meaningful sense of the word. The Clinton surplus helped accelerate the rapid accumulation of private sector debt and a decrease in personal savings.
Can you show me any expansions not driven by credit?

No expansion has been driven by credit. Credit is the tool by which the savings - which are the driver of expansions - have sometimes (but sometimes not) been put to use.

Notice how you skipped over my point about money creation, which is interesting, since understanding money creation destroys your argument.

No, I addressed it. Since you aren't referencing a specific point, however, I'll re-route you to the point at the bottom. Creation of a means of exchange =/= creating the things that are exchanged themselves. It simply facilitates the change.

What leads to production growth will?

Innovation, population growth, new resources, and applied savings.

Think about that for a second. Trade does lead to growth, but for every country running a trade surplus, another runs a trade deficit.

So?

That's fine and all if the government runs a deficit to fill the gap, but if not, that's a persistent drain of dollars.

Dollars aren't wealth - they are a variable storage of value that facilitates a means of exchange. If "America" prints and trades $500 to China for a TV, then all that has occurred (until China re-spends the money on US goods or services, or invests / repatriates it here) is that we have traded some green pieces of paper (or 1's and 0's) in return for an actual television.

The only way for the private sector to continue is credit growth.

:shrug: that's incorrect. If anything, the US populace is already deeply in debt, and needs to reduce its debt burden and re-attempt savings.

Have you ever read anything from Steve Keen or Minsky?

You say the private sector "shouldn't" and that the government shouldn't either. This is where you illuminate your, understandable, misunderstanding of money creation in the modern economy. Go back to what I've said and think about your statement again.

yup. Did so. My point remains - the government does not create wealth, so when it spends the money that serves as a storage of value and means of facilitating exchange, it first takes that wealth from somewhere else.

Government spending does help economies growth, especially during a slump. That's not debatable.

Sure it is. Because the analyses that say that tit does never talk about what government is taking before it spends it.

Cost/Benefit analysis."
The government gets its dollars from thin air,

No, it gets it's dollars from the FED. When the Fed creates money for the purpose of lending to the government so that it can then return the profits it makes off of the government to the government, what is effectively occurring is that they are imposing a tax on holders of dollars and dollar-denominated debt instruments.

and if you want to use the "crowding out" argument, I can't help but laugh since we're already in a low interest rate environment with plenty of investment capital. I don't even see how a deficit can crowd anything out unless the economy is running hot with full employment.

Exactly. That's why you don't get high inflation and high unemployment..... until the 1970s, when we discovered that we could, and Keynsian Economics had to go back to the drawing board.

When you bring up Venezuela, you're talking about a socialist country that doesn't float its own currency, has rampant corruption, a broken exchange system, etc.. However, when it comes to keystrokes, there really is no limit.

Sure there is. The lower the threshold to the creation of money, the further that limit goes, but it's always there. The problem becomes diminishing returns, as you destroy the value of the item as you create it.

"Influenced." The bond market cant really fight against the bond issuer/currency issuer.

Were that true, no nation would have ever had to restructure their debt. :shrug:

What makes you think a government deficit takes from other holders of dollars?

Because inflation is a tax. (now comes the part where you crow about how we are in a low inflation environment, and then comes the part where I point out that you are artificially treating "zero" as a hard baseline).

Credit growth leads to an increase in private sector debt, what does this have to do with savings?

Can you trade something before you have it?

Bank loans create deposits, what do you think credit growth refers to? It's the main driver of growth.

No, it isn't. It's a tool used by the drivers of growth.
 

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Absolutely - we should eliminate all taxation and simply borrow our way to prosperity. ;)

That economic policy would seem to please both the left and the right; the right opposes (excessive?) taxation and the left wants (unlimited?) spending.

Taxation is one of the things that gives money value and stability, so we probably shouldn't eliminate it, but we probably could reduce it, without cutting spending, and with no negative effects.
 

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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.

Debt is the free markets way of better allocating money when it has been mal-distributed. Now if you can come up with a better system to distribute money, then I'm all for reducing debt (it would probably be reduced naturally if we had a more optimal money distribution system).
 

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No expansion has been driven by credit. Credit is the tool by which the savings - which are the driver of expansions - have sometimes (but sometimes not) been put to use.



No, I addressed it. Since you aren't referencing a specific point, however, I'll re-route you to the point at the bottom. Creation of a means of exchange =/= creating the things that are exchanged themselves. It simply facilitates the change.



Innovation, population growth, new resources, and applied savings.



So?



Dollars aren't wealth - they are a variable storage of value that facilitates a means of exchange. If "America" prints and trades $500 to China for a TV, then all that has occurred (until China re-spends the money on US goods or services, or invests / repatriates it here) is that we have traded some green pieces of paper (or 1's and 0's) in return for an actual television.



:shrug: that's incorrect. If anything, the US populace is already deeply in debt, and needs to reduce its debt burden and re-attempt savings.





yup. Did so. My point remains - the government does not create wealth, so when it spends the money that serves as a storage of value and means of facilitating exchange, it first takes that wealth from somewhere else.



Sure it is. Because the analyses that say that tit does never talk about what government is taking before it spends it.



No, it gets it's dollars from the FED. When the Fed creates money for the purpose of lending to the government so that it can then return the profits it makes off of the government to the government, what is effectively occurring is that they are imposing a tax on holders of dollars and dollar-denominated debt instruments.



Exactly. That's why you don't get high inflation and high unemployment..... until the 1970s, when we discovered that we could, and Keynsian Economics had to go back to the drawing board.



Sure there is. The lower the threshold to the creation of money, the further that limit goes, but it's always there. The problem becomes diminishing returns, as you destroy the value of the item as you create it.



Were that true, no nation would have ever had to restructure their debt. :shrug:



Because inflation is a tax. (now comes the part where you crow about how we are in a low inflation environment, and then comes the part where I point out that you are artificially treating "zero" as a hard baseline).



Can you trade something before you have it?



No, it isn't. It's a tool used by the drivers of growth.

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? No company will be willing to allow it's inventory to grow faster than sales for vary long. Savings, while good for the individual, is horrible for an economy.

It's a myth that savings is needed for money to be available for business expansion. Money can be and is created out of thin air - no savings is needed. Banks are not reserve constrained. They can lend money even if they have no excess reserves at all. The deposit that results from the loan itself can fully fund the loan.
 

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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.

Credit acts like money until sk own in the chain wakes up and realized that his buried gold is also claimed by a hundred other people, and decides to get the heck out of dodge. Then collapse follows.
 

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ASSET-BUBBLES

Rising asset prices give the owners of assets more wealth (i.e. collateral) against which they can borrow still more. This cycle of expanding credit leading to increased spending, investment, job creation and wealth, followed by still more borrowing produces a happy upward spiral of prosperity….so long as it continues. Eventually, however, every credit-induced economic boom comes to an end when one or more important sector of the economy becomes incapable of repaying the interest on its debt.

Rising asset-prices are typical of any market-boom that will inevitably bust. We are not over the "Tulip Mania*" of the Dutch Golden Age, when the boom-'n-bust of imported tulip-bulbs ocurred in the 17th century. The Great Recession is no more nor any less than a repeat of the Great Depression - both resulting from economic "asset-bubbles".

Why do "asset-bubbles" come and go? Because the generations succeed one another, and they learn the hard-way by repeating the same mistakes.

As we did with the Great Recession, when:
*Obama spiked the skyrocketing Unemployment Rate at 10% in 2010 with Stimulus Spending; which he undertook because key-economists were telling him to do so.
*Then, because only 37.8% decided to vote in 2010, the American electorate gave the HofR over to the Replicants who refused any further Stimulus Spending, which hobbled the ability of the US economy to create jobs.
*So it did not from 2010 to 2014. (See BLS Employment to Population Ratio.)

When will we ever learn? You tell me!

But don't tell me that the above historical facts were produced by Mysterious Manipulations, because they weren't. They were the product of a democratic vote by a minority electorate for "change". Which, in economic terms, did not happen in the least.

It seems new generations must learn new lessons the hard way. That is, we have no one to blame but ourselves ...

*The term "tulip mania" is now often used metaphorically to refer to any large economic bubble when asset prices deviate from intrinsic values
________________________________________
 
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You clearly don't understand the article if the first statement that comes to your mind is abolishing taxation or borrowing.

:roll:

He put a 'wink' smiley face after the sentence in question. He was (I assume) joking.
 

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Credit acts like money until sk own in the chain wakes up and realized that his buried gold is also claimed by a hundred other people, and decides to get the heck out of dodge. Then collapse follows.

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 expansion has been driven by credit. Credit is the tool by which the savings - which are the driver of expansions - have sometimes (but sometimes not) been put to use.



No, I addressed it. Since you aren't referencing a specific point, however, I'll re-route you to the point at the bottom. Creation of a means of exchange =/= creating the things that are exchanged themselves. It simply facilitates the change.



Innovation, population growth, new resources, and applied savings.



So?



Dollars aren't wealth - they are a variable storage of value that facilitates a means of exchange. If "America" prints and trades $500 to China for a TV, then all that has occurred (until China re-spends the money on US goods or services, or invests / repatriates it here) is that we have traded some green pieces of paper (or 1's and 0's) in return for an actual television.



:shrug: that's incorrect. If anything, the US populace is already deeply in debt, and needs to reduce its debt burden and re-attempt savings.





yup. Did so. My point remains - the government does not create wealth, so when it spends the money that serves as a storage of value and means of facilitating exchange, it first takes that wealth from somewhere else.



Sure it is. Because the analyses that say that tit does never talk about what government is taking before it spends it.



No, it gets it's dollars from the FED. When the Fed creates money for the purpose of lending to the government so that it can then return the profits it makes off of the government to the government, what is effectively occurring is that they are imposing a tax on holders of dollars and dollar-denominated debt instruments.



Exactly. That's why you don't get high inflation and high unemployment..... until the 1970s, when we discovered that we could, and Keynsian Economics had to go back to the drawing board.



Sure there is. The lower the threshold to the creation of money, the further that limit goes, but it's always there. The problem becomes diminishing returns, as you destroy the value of the item as you create it.



Were that true, no nation would have ever had to restructure their debt. :shrug:



Because inflation is a tax. (now comes the part where you crow about how we are in a low inflation environment, and then comes the part where I point out that you are artificially treating "zero" as a hard baseline).



Can you trade something before you have it?



No, it isn't. It's a tool used by the drivers of growth.

Lol...you woke the lion now David_N.
 

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Lol...you woke the lion now David_N.

Usually I keep him on ignore. I will probably regret ignoring that rule, as it is hard to address who has convinced themselves that there is a free lunch.
 

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Usually I keep him on ignore. I will probably regret ignoring that rule, as it is hard to address who has convinced themselves that there is a free lunch.

Can you show me where he said he believes in a "free lunch"? What does that even mean?
 

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Usually I keep him on ignore. I will probably regret ignoring that rule, as it is hard to address who has convinced themselves that there is a free lunch.

I don't ignore him (because he is generally harmless - it's only rude/trolling and closed minded people I ignore) but ever since he said the 1920/21 Depression was a minor recession (because it ended relatively quickly without massive government stimulus and he wants to belittle the event, presumably)...I gave up trying to reason with him.

One thing I have learned on here is once someone's mind is closed, it is pointless to try and open it.

But I applaud your attempt...you never know.
 
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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.

Your unsupported assertion regarding the gold standard is neither interesting nor on point.

My point addressed the tendency of private credit to act like money (public credit, if you will). Until it fails.
 

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Can you show me where he said he believes in a "free lunch"? What does that even mean?
He thinks we can endlessly print ourselves wealthy without incurring ruinous inflation. So, we could boost GDP by (for example) increasing government expenditure by 50%, borrowing the money from the Fed, printing more debt to pay off that debt, printing off more debt to pay off THAT debt, ad nauseum. Free wealth, forever, because inflation isn't tied to the size of the monetary stock, but mysterious "other" factors that conveniently explain why every nation to try this idiocy goes bankrupt.

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He thinks we can endlessly print ourselves wealthy without incurring ruinous inflation.

I've never seen him say that.

So, we could boost GDP by (for example) increasing government expenditure by 50%, borrowing the money from the Fed, printing more debt to pay off that debt, printing off more debt to pay off THAT debt, ad nauseum. Free wealth, forever, because inflation isn't tied to the size of the monetary stock, but mysterious "other" factors that conveniently explain why every nation to try this idiocy goes bankrupt.

Under certain circumstances, that is absolutely true. A government can increase the GDP by spending money printed by the fed out of thin air, and it can do so with minimal or no inflation. It's actually been done before. Remember WW2? me either, but you get the point. I don't consider careful use of monetary or fiscal policy to create a better economy a "free lunch", it's just good policy. Reagan did it in the 1980's and created 19 million jobs - was that a free lunch?

The only thing controversial is if we are at that point, or if anyone is claiming that we can always print huge amounts of money without inflation. I think he has been pretty clear that when our economy is operating at or near full employment, it's not possible. So do you think we are at full employment? If so, then you must be a UGE fan of this Obummer economy.
 

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Savings is never a driver of an economy

:shrug: this is historically false. Recommend you take a look at the post-WWII boom for the most obvious counter-example.

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? No company will be willing to allow it's inventory to grow faster than sales for vary long. Savings, while good for the individual, is horrible for an economy.

No, but companies are wise if they consume less than spend - this is called "profit". Profit can either be taken by the company owners for their own purposes, or can be held to fund future investment and expansion. Similarly, in an economy, if people consume less than they produce, then they place their profit into storages of value - typically in the form of currency - until they need or want it down the road.

If everyone consumes less than they produce, then this does not inherently mean that inventory is proportionally excess, because people are capable of producing more than we require, and then storing that excess.

It's a myth that savings is needed for money to be available for business expansion.

No, it is a wise strategy to use savings for business expansion. 100% of businesses that go into bankruptcy have debt.
 

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I've never seen him say that.

Scroll down to the bottom.

David_N said:
"Paying off" the debt is simply converting bonds back to dollars, and there's no reason not to issue bonds, since they serve as a reserve management tool and a place to park dollars for those who want to do so. (This includes China) The governments liability doesn't change. Inflation that people point to through history, such as the Weimar or Zimbabwe, is directly linked to demand for goods exceeding the available supply, or issues such as foreign debt/pegging/etc.. What makes you think there isn't such a thing as a free lunch?... Claiming that there's no such thing as a "free lunch" is silly considering money is created by keystrokes.

There is no such thing as a free lunch.

Under certain circumstances, that is absolutely true. A government can increase the GDP by spending money printed by the fed out of thin air, and it can do so with minimal or no inflation.

That is true only when you treat "zero" as an artificial hard baseline, and forget that dollars are not wealth in and of themselves, but rather (fluctuating) storages of value that enable exchange of goods and services.

The only thing controversial is if we are at that point, or if anyone is claiming that we can always print huge amounts of money without inflation.

Well, that would be David_N. We can print our way out of our current debt, and then print our way out of the debt we incur by doing that, ad infinitum, all for free.

I think he has been pretty clear that when our economy is operating at or near full employment, it's not possible.

Actually I think he has argued that it will create full employment. The 1970s, apparently, never happened.
 

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:shrug: this is historically false. Recommend you take a look at the post-WWII boom for the most obvious counter-example.

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.

No, but companies are wise if they consume less than spend - this is called "profit". Profit can either be taken by the company owners for their own purposes, or can be held to fund future investment and expansion. Similarly, in an economy, if people consume less than they produce, then they place their profit into storages of value - typically in the form of currency - until they need or want it down the road.

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

If everyone consumes less than they produce, then this does not inherently mean that inventory is proportionally excess, because people are capable of producing more than we require, and then storing that excess.

What? If everyone consumed less than we produce, we would reduce production to match consumption. How do you "store" haircuts? How do you store milk? Why would we want or need to store toaster ovens or BMW cars? How do you store an education? You are confusing money with wealth. You can save money, you can't really save wealth (long term).

No, it is a wise strategy to use savings for business expansion. 100% of businesses that go into bankruptcy have debt.

When individuals save, they typically do it in bank accounts. Businesses then borrow that money. Businesses that have savings aren't using that savings for expansion, or else obviously they wouldn't have the savings - it would have been spent.
 
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