Government deficits should be renamed to adding to the money base.

[Kushinator]

M2 hasn't grown by 44%. The money stock at the start of 2009 was 8,300b. Today it's 10,800b. That's roughly 30% increase. http://research.stlouisfed.org/fred2/graph/?s[1][id]=M2

Are you purposefully this dense? I said since December 2007 (the start of the recession).

It should say defacto end user producer as you can't find a US "made" product that isn't manufactured overseas, shipped to the US, put together then sold (i.e. Apple, Autos, and so on).

The U.S. is the largest manufacturer of power generation equipment, which is the single most important infrastructure component. In China, they produce the items we use when we fly on an airplane. In America, we produce the airplanes.

Officially in 2011, but they aren't always "open" about it either.

So your theory regarding GDP, foreign reserves and M2 was bogus?

 

[austrianecon]

Are you purposefully this dense? I said since December 2007 (the start of the recession).

The U.S. is the largest manufacturer of power generation equipment, which is the single most important infrastructure component. In China, they produce the items we use when we fly on an airplane. In America, we produce the airplanes.

So your theory regarding GDP, foreign reserves and M2 was bogus?

And what happen between 2007 and 2008? Increase the M2 during that period went directly to cover losses and to boost inflation during a deflation period, do you disagree?

We aren't disagreeing on the US being the final producer. My point is that despite this.. the US still has a $34.2 billion trade deficit (for July).

My theory is correct as my contention was the US has to do 1 or up to 3 things to lower inflation when increasing M2 stock. So for example M2 supply grew from 9,700 billion to 10,500 billion last year. US GDP grew by $500 billion in 2012 as well. Interest rates + Inflation (other oddities) covers that difference.

M2 only goes up due to trade imbalance.

 

[fmw]

Government deficits aren't a bad thing, why not just have the government send every US citizen a check for $1 million? Then we would have a nation of millionaires.

 

[Kushinator]

And what happen between 2007 and 2008? Increase the M2 during that period went directly to cover losses and to boost inflation during a deflation period, do you disagree?

No. But my point still stands. M2 has increased by 44% while economic growth has only increased by 12.9%. Where is the inflation that you speak of?

the US still has a $34.2 billion trade deficit (for July).

So? It is on pace to fall by 7.4% on an annual basis.

My theory is correct as my contention was the US has to do 1 or up to 3 things to lower inflation when increasing M2 stock. So for example M2 supply grew from 9,700 billion to 10,500 billion last year. US GDP grew by $500 billion in 2012 as well. Interest rates + Inflation (other oddities) covers that difference.

??? This makes no sense. The difference between M2 growth from the end of Q1 2013 and Q1 2012 was $708.4 billion, less $473 billion in nominal GDP growth equates to a $235.4 billion to be covered by "interest rates + inflation (other oddities)". This doesn't even make any sense, and i suspect you just made this **** up.

M2 only goes up due to trade imbalance.

Right.... The trade balance of -$468 billion between Q1 2012 and Q2 2013.

 

[Kushinator]

Government deficits aren't a bad thing, why not just have the government send every US citizen a check for $1 million? Then we would have a nation of millionaires.

Appealing to extremes does not support your position that deficits are "bad". You have to understand why we have deficits in the first place. Then, it would be helpful to know why the deficit is expected to fall by more than 50% on a January-December basis.

 

[imagep]

...Since the US barely produces anything...

Who told you THAT?

As a percent of GDP, we now manufacture more goods than we did during the 50's, 60's, 70's, 80's or 90's. Manufacturing is our largest GDP sector, the only reason that manufacturing jobs are decreasing (as a percent of all jobs) is because we are becoming more automated.

We are also the largest manufacturer in the world (although I do believe that China briefly topped us in 2009-2010.

And I am pretty sure that I recently read that we are the second largest exporter.

 

[austrianecon]

Who told you THAT?

As a percent of GDP, we now manufacture more goods than we did during the 50's, 60's, 70's, 80's or 90's. Manufacturing is our largest GDP sector, the only reason that manufacturing jobs are decreasing (as a percent of all jobs) is because we are becoming more automated.

Let's clear this up.. Goods production doesn't equate to manufacturing. A Good could be anything from Food to Clothes. A farmer doesn't manufacture a food. But You need to find better resources cause that's a flat out lie as US goods production has declined to 18.7% in 2008 while Service goods (think service sector) has risen to account for 68.2%. Here.

US Manufacturing has declined massively over the last 30 years. The peak was the 1950s at 26% (rounding up of course and same with the following number), in 2011 manufacturing accounted for 13% of GDP ($1.8 trillion). Of what the US manufactures, 83% of it accounts for what goes overseas in trade.


You can read more Here.

We are also the largest manufacturer in the world (although I do believe that China briefly topped us in 2009-2010.
And I am pretty sure that I recently read that we are the second largest exporter.

China is still the leader in manufacturing and will be the leader for a while. Exporting numbers depend on if you are counting the EU as one country or several different.. If you count the EU as one, then they are #1, then China, then the US. The difference between China and the US is $500 billion, that's a big number and getting larger. Now if you don't want to count the EU as one.. then you have little old Germany nipping at the heals of the US. Germany has a good chance to pass the US in exporting this year. So come end of 2013, it possibly (and I believe it will) be.. China, Germany, US.

So there are certain realities here.. no longer is the US largest manufacturer (hell US would be 3rd if you count the EU as one) in the world and it's % Manufacturing/GDP has been declining. No longer is the top exporter and will probably lose another spot this year.

 

[imagep]

Let's clear this up.. Goods production doesn't equate to manufacturing. A Good could be anything from Food to Clothes. A farmer doesn't manufacture a food. But You need to find better resources cause that's a flat out lie as US goods production has declined to 18.7% in 2008 while Service goods (think service sector) has risen to account for 68.2%. Here.

US Manufacturing has declined massively over the last 30 years. The peak was the 1950s at 26% (rounding up of course and same with the following number), in 2011 manufacturing accounted for 13% of GDP ($1.8 trillion). Of what the US manufactures, 83% of it accounts for what goes overseas in trade.


You can read more Here.




China is still the leader in manufacturing and will be the leader for a while. Exporting numbers depend on if you are counting the EU as one country or several different.. If you count the EU as one, then they are #1, then China, then the US. The difference between China and the US is $500 billion, that's a big number and getting larger. Now if you don't want to count the EU as one.. then you have little old Germany nipping at the heals of the US. Germany has a good chance to pass the US in exporting this year. So come end of 2013, it possibly (and I believe it will) be.. China, Germany, US.

So there are certain realities here.. no longer is the US largest manufacturer (hell US would be 3rd if you count the EU as one) in the world and it's % Manufacturing/GDP has been declining. No longer is the top exporter and will probably lose another spot this year.

As we become a richer country, it's only natural that we shift more and more from having to expend resources on manufactured goods to being able to expend more resources on services, thus it's only natural that manufacturing as a percent of GDP will decline. This doesn't mean that the production of manufactured goods is declining, only that the production of services is growing faster than the production of manufactured goods. Eventually, every country will experience this same shift as they become more wealth.

Look at it like this, if I own ten gold coins and ten silver coins, then 50% of the total amount of coins that I own are gold. If I then acquire 10 more gold coins and 50 more silver coins, even though the percent of my total coins that happen to be gold has dropped, I still have more gold coins.

There are only so many shirts that I need, only so many cars, only so many televisions and cell phones. Yet, I could consume an ever increasing amount of services. I'd love to be able to have a housekeeper, and a cook, and a gardener, and as I have more and more leisure time (because I am being able to devote less time to manufacturing), it would be nice to be able to have the service of a scuba instructor, tour guide, foreign language instructor, etc.

Now when you say that "good production doesn't equate to manufacturing", and then use examples of food and clothing, I'm really not sure what your point is. If I am a farmer, I am manufacturing food, if I am a textile mill operator, then I am manufacturing textiles, if I am a custom sign maker, then I am manufacturing signs. I think of my graphics shop much more as a small factory, than I do a service industry. I have industrial type equipment (forklift, large machinery, air compressors, etc) that is pretty much identical to which one might find in a manufacturing plant, thus my service of producing custom printed goods is indeed manufacturing, even if it is not officially categorized as that.

The reason that we tend to believe that most of the manufactured products that we purchase are foreign made is because of the tags or labels that say "produced in (foreign country)". So when we go to the mall, and pay $20 for a pro football team tshirt, and look at the tag and sees that it says "made in Bangladesh", somehow we think of our $20 as being sent back to Bangladesh. But of course that isn't accurate. Most of the value of that tshirt was made in the USA. The cotton was likely grown in the American southwest, the machinery that it was made with was likely made in the US, the company that did the production is likely a US owned company, the design of the plant and the design of the product were likely made in the US. Then it gets shipped to a printer in the US who uses an American designer to come up with a great design, and prints it in the US. American shipping companies and distribution centers add value to the product by getting it to the store, and of course the store adds value by getting it to the consumer. So that $20 tshirt which is "made in Bangladesh" might very well have $19.75 of it's value produced in the US by Americans - meaning that in reality, it's only about 1% foreign produced, and not the 100% that we tend to assume.

 

[austrianecon]

As we become a richer country, it's only natural that we shift more and more from having to expend resources on manufactured goods to being able to expend more resources on services, thus it's only natural that manufacturing as a percent of GDP will decline. This doesn't mean that the production of manufactured goods is declining, only that the production of services is growing faster than the production of manufactured goods. Eventually, every country will experience this same shift as they become more wealth.

And that's not good for an economy. You want growth manufacturing over time to increase as well because you only get national wealth from production (manufacturing). When your GDP growth comes from services in massive amounts it becomes a failed system as you aren't creating wealth, you are creating debt. It's why US has an avg of $ 7,800 per person which is 11x greater then it was in 1980. Now I am not saying all debt is bad but the credit card syndrome of Americans is a major problem.

Look at it like this, if I own ten gold coins and ten silver coins, then 50% of the total amount of coins that I own are gold. If I then acquire 10 more gold coins and 50 more silver coins, even though the percent of my total coins that happen to be gold has dropped, I still have more gold coins.

This doesn't equate. As the point I am making is those "gold" (manufacturing) allows you to get "silver" (services) and still a balance on paper but in reality have a surplus. By keeping your "gold" at 10 but increase your "silver" to 50, you are at a net loss on paper and reality. That's how trade deficits grows, that's how consumer debt goes up, and why little swings in one sector can crush your economy as we saw with Housing.

There are only so many shirts that I need, only so many cars, only so many televisions and cell phones. Yet, I could consume an ever increasing amount of services. I'd love to be able to have a housekeeper, and a cook, and a gardener, and as I have more and more leisure time (because I am being able to devote less time to manufacturing), it would be nice to be able to have the service of a scuba instructor, tour guide, foreign language instructor, etc.

You do realize that that the sales of shirts, cars, televisions and cell phones are services so those should have a cap as well right? But what I am saying is those, shirts, cars, televisions and cell phones use to be a regular part of US manufacturing so, for every car, television, cell phones sold, one was created.. it was a 1:1 ratio.

Now when you say that "good production doesn't equate to manufacturing", and then use examples of food and clothing, I'm really not sure what your point is. If I am a farmer, I am manufacturing food, if I am a textile mill operator, then I am manufacturing textiles, if I am a custom sign maker, then I am manufacturing signs. I think of my graphics shop much more as a small factory, than I do a service industry. I have industrial type equipment (forklift, large machinery, air compressors, etc) that is pretty much identical to which one might find in a manufacturing plant, thus my service of producing custom printed goods is indeed manufacturing, even if it is not officially categorized as that.

Manufacturing is where raw materials are transformed into finished goods on a large scale.

A farmer doesn't manufacture food, rather grows a raw material. When that raw material is shipped to a canning facility or butcher or such.. that item becomes a manufactured good after they are done with it. Yes, the textile mill operator is a manufacturer. A sign maker is not manufacturing.

So you provide a service and add nothing to manufacturing. Just like Home Depot, Wal-Mart or Target who use the same equipment.

The reason that we tend to believe that most of the manufactured products that we purchase are foreign made is because of the tags or labels that say "produced in (foreign country)". So when we go to the mall, and pay $20 for a pro football team tshirt, and look at the tag and sees that it says "made in Bangladesh", somehow we think of our $20 as being sent back to Bangladesh. But of course that isn't accurate. Most of the value of that tshirt was made in the USA. The cotton was likely grown in the American southwest, the machinery that it was made with was likely made in the US, the company that did the production is likely a US owned company, the design of the plant and the design of the product were likely made in the US. Then it gets shipped to a printer in the US who uses an American designer to come up with a great design, and prints it in the US. American shipping companies and distribution centers add value to the product by getting it to the store, and of course the store adds value by getting it to the consumer. So that $20 tshirt which is "made in Bangladesh" might very well have $19.75 of it's value produced in the US by Americans - meaning that in reality, it's only about 1% foreign produced, and not the 100% that we tend to assume.

No, it's not. Shipping a raw material to Bangladesh is a trade. Bangladesh making the shirt is manufacturing for Bangladesh, not the US. The rest doesn't matter in measuring manufacturing as printing a logo, designing it and sell it.. are services. 100% of manufacturing was done in Bangladesh.

 

[Old English]

This terminology may go over many heads, but it is important to learn about our economy. In laymen terms, the below statement by Mosler simply means that government deficits are more appropriately named as adding to the money supply. The simple naming of something drastically effects how people view things, and in general 99% of people I know view the government deficit as a bad thing, when it isn't.

"With fixed fx/convertible currency 'base money' doesn't include govt. secs as those obligations are claims on govt. reserves (gold, fx, etc.), which are part of 'national savings' as defined.

However, with today's floating fx/non convertible currency tsy secs (held outside of govt) are logically additions to 'base money', as the notion of a reduction of govt reserves (again, gold, fx, etc) is inapplicable to non convertible currency.

That is, with today's floating fx, I define base money as currency in circulation + $balances in Fed accounts. And $ balances in Fed accounts include both member bank 'reserve accounts' and 'securities accounts' (tsy secs). And to me it's also not wrong to include any other govt. guaranteed debt as well, including agency paper, etc.

That is, with floating fx, 'base money' can logically be defined as the total net financial assets of the non govt sectors.

(Note, for example, that this means QE does not alter base money as thus defined, which further fits the observation that QE in today's context is nothing more than a tax that removes interest income from the economy.)

And deficit reduction is the reduction in the addition of base money to the economy, with the predictable slowing effects as observed.

The point of this post is to 'reframe' govt. deficit spending away from 'going into debt' as it would be with fixed fx, to 'adding to base money' as is the case with floating fx where net govt. spending increase the economy's holdings of govt. liabilities, aka 'tax credits'."

If the point of this post has been to re-frame the way we look at the deficit, then you have failed. I was told by a professor of mine that you can tell how well an individual is versed in their topic by how effective they are at explaining it to a person with none or little prior knowledge. Well, not to flame, but I read your post and I have no idea what your talking about, besides the opening sentence which told me that a deficit is when money is added to the supply, which is NOT a good thing.

Look, I don't need all those fancy terms to tell you that if there is a greater supply then the demand goes down, which has a bad effect. You want to increase the demand of any product, whether it be the U.S. dollar(our livelihood) or a movie ticket. And all that complicated banking nonsense about tax credits, and base$, etc... are partially to blame for our financial crisis!--you get a bunch of senseless IV league brats who think they know what they're doing with their complex equations and algorithms, and because no one can understand what they're saying they go ahead and start messing with the economy, but in the end, it's the working class that gets the short end of the stick; the guy who can't find a job and now has to pay 10$ for a movie ticket, which cost him 2.50$ growing up!

 

[imagep]

And that's not good for an economy. You want growth manufacturing over time to increase as well because you only get national wealth from production (manufacturing). When your GDP growth comes from services in massive amounts it becomes a failed system as you aren't creating wealth, you are creating debt. It's why US has an avg of $ 7,800 per person which is 11x greater then it was in 1980. Now I am not saying all debt is bad but the credit card syndrome of Americans is a major problem.

Wealth is created not only by manufacturing, but also by services. Who is more wealthy, someone who can only afford $X in manufactured products, or someone who can afford $X in manufactured products plus $Y in services? Wealth is anything that reducing human discomfort - even air conditioning, or medical care, or having more leisure time.

Manufacturing is where raw materials are transformed into finished goods on a large scale.

A farmer doesn't manufacture food, rather grows a raw material. When that raw material is shipped to a canning facility or butcher or such.. that item becomes a manufactured good after they are done with it. Yes, the textile mill operator is a manufacturer. A sign maker is not manufacturing.

So you provide a service and add nothing to manufacturing. Just like Home Depot, Wal-Mart or Target who use the same equipment.



No, it's not. Shipping a raw material to Bangladesh is a trade. Bangladesh making the shirt is manufacturing for Bangladesh, not the US. The rest doesn't matter in measuring manufacturing as printing a logo, designing it and sell it.. are services. 100% of manufacturing was done in Bangladesh.

I don't agree with your definition of manufacturing, and I guess thats something that we will just have to disagree with.

If I take some blanks shirts, and some ink, and use my equipment to increase the value of the shirts by adding a design, then I have used raw materials (shirts and ink), labor and equipment, to manufacture a finished product for consumer use. It's no different than the farmer using seeds, equipment, labor and land to produce cotton, or the mill using cotton, labor and equipment to produce thread, and another mill using that thread, labor and equipment to produce cloth, or the cut and sew plant using that cloth, labor and equipment to produce a blank tshirt. It's all manufacturing.

Likewise, a nail salon might use some chemicals, equipment, and labor in their "product". We tend to think of this as being a service, but yet they are producing something that is a product (manicured toenails) that is in demand.

The only difference between something that we tend to consider a service or a manufactured product is the scale of the process, but making a determination on that bases is quite arbitrary. So maybe if a shirt printing company has 100 production lines, and has a minimum order of 10,000 pieces per order, you would consider that manufacturing, yet if another shirt printing company only has two production lines, and accepts orders as small as 10 pieces, using identical equipment, labor, and raw materials, that is somehow not manufacturing?

By the way, those are two real life examples. They guy who lives down the street from me has a very large shirt printing plant, and does long run printing for major companies (he also prints the shirts for the O'Reily factor), I have a very small shop, and print shirts mostly for the end consumer. Again, the only difference is scale.

the last time that I had a "real" job, I worked for a company that produced tennis balls. Most of the balls that we produced were sold to retailers, but we also made custom logoed balls for end consumers. We once made balls for the White House (which was quite cool - they had the presidential seal printed on them). I never really saw a difference between the "manufacturing" of balls that we sold to Walmart, or the "service" of custom logoing balls for the White House.