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Without debt financing this earnings gap would be entirely unlivable.
I had no idea that was your jobDebt financing to overcome the earnings gap only prolongs the inevitable. Eventually, once people's ability to earn wanes, they have to come and see consumer bankruptcy lawyers like me.
I had no idea that was your job
I'd be interested in your opinion on which countries have not gained.They have improved the core countries but i would argue that the countries that are on the periphery have rather varying results, some have not seen any improvement at all. The debt, massive privatization, and forbidding industry supports have crushed many countries.
Many African countries, countries that have been under multi decade embargos, sweatshop workers, anywhere where nestle owns the water supply, etc. the metrics we use to say who has gained tend to be not very well thought out. Some of these things are features, not a bug.I'd be interested in your opinion on which countries have not gained.
You raise a couple of interesting points. First is the lack of credible metrics. As the interviewee noted in another thread, it's hard to get this information, especially when the country is poor. So data sets are difficult to piece together. Second is a point touched on briefly earlier, relative deprivation. In some circumstances, poor people don't "know" they're poor, because they have nothing to compare it to. In others, the disparity is obvious to all parties (such as in Gaza, or under apartheid). From such, conflicts proceed.Many African countries, countries that have been under multi decade embargos, sweatshop workers, anywhere where nestle owns the water supply, etc. the metrics we use to say who has gained tend to be not very well thought out. Some of these things are features, not a bug.
Yeah i was more alluding to the reasons people like Steven Pinker are wrong because they use bad metrics and methodology, thats different than difficulty.You raise a couple of interesting points. First is the lack of credible metrics. As the interviewee noted in another thread, it's hard to get this information, especially when the country is poor. So data sets are difficult to piece together. Second is a point touched on briefly earlier, relative deprivation. In some circumstances, poor people don't "know" they're poor, because they have nothing to compare it to. In others, the disparity is obvious to all parties (such as in Gaza, or under apartheid). From such, conflicts proceed.
I didn't get to the latter concepts of "trade deficits" and discontinuity of value that were also raised in your post. "• Trade deficits aren't harmful"
What tariffs do is artificially change the established "value" of a good or commodity based upon geography. Artificial in the sense that it is not based upon real-world circumstances (e.g., like shipping charges, or the distances upon which they are based). Relatedly, a "trade deficit" is a somewhat artificial construct. The reality is that a trade is a trade. Value is given for value received. The concept of a "trade deficit" (more properly the "Balance of Trade") is that there is some outside consideration that makes such a trade "uneven". There is not, actually, a monetary basis for making that determination, except in the abstract and on a "meta"/cumulative basis.
I happen to agree that trade deficits rarely have real world detriments, except cumulatively. This is really a hold-over conception from the age of Mercantilism. It has very little validity in a global or modern economy, as any such deficits are frequently balanced out by investments in other instruments, like Treasury bonds, which are not included in the measurement of "trade balances".
"An Imbalance of Savings and Investments
To many in the world of economics, a trade deficit is about an imbalance between a country’s savings and investment rates.
This means that a country is spending more money on imports than it makes on its exports. Under the rules of economic accounting, it must make up for that shortfall. The U.S. can do just that by either borrowing money from foreign lenders or permitting foreign investment in U.S. assets.
This foreign lending and investment can be seen as a vote of confidence in the U.S. economy and a source of long-term economic growth, if the borrowed money or foreign investment is used wisely (such as in productivity growth).
This was the case with the U.S. for several decades in the 1800s.4 The foreign money went into railroads and other public infrastructure, which helped the U.S. develop economically."
Trade Deficit: Advantages and Disadvantages (Investopedia)
In the real world, countries that have excess funds available are quite willing to invest those funds in US government and corporate bonds, because they are viewed as stable. Indeed, the inflation and volatility caused by the on-again-off-again tariff policy is creating a real-world problem, because yields on bonds (which is what the bondholder has to pay out) is going up as investor confidence goes down. That means government "borrowing" is getting more expensive, and for no rational reason.
I have a quibble with your quibble.I have a quibble with some of the standard terminology, because it's misleading.
My quibble: what is "investment"? In a way, all investment is "parking dollars". Sometimes, more effectively than others. We call it "capitalism", using excess "capital" by "investing" it, and getting a "return" on investment. The form of return varies based upon the kind of investment. But, the basic concept is to use "investment" as a medium of exchanging value for value. (I'm ignoring for now the problems with this exchange of value and the distortions of the economy which occurr.)First, buying treasuries is in no way "investing" in the economy; it is merely a place to park dollars that you aren't going to use. Foreign investment in corporate bonds, on the other hand, goes to real production. The dollars get used.
I'm not sure I follow the concept, so I'm not sure I disagree... or agree? I tend, however to disagree that banks are "creating money." Rather, I think they are siphoning value from other people's money. We often, however, conflate the concepts of saving and investment - or artificially segregate different forms of investment. We'll have to explore that further. I can get passionate about how bad the financial sector can be for the community - taking advantage of the privileged position their function has for the economy.Second, the old idea that investment comes from savings is backwards, as pointed out by some very smart guys not so long ago. (This conversation unfolded on one message board in particular, which has since been taken down, unfortunately. Bit of history lost there.) This stems from the (also fairly recent) understanding that banks don't lend out deposits, they create money by expanding their balance sheets. So borrowing to invest results in the creation of money, counted as savings. Investment comes first. That was their big insight.
Here I fundamentally disagree (I think). It's a far more convoluted and complex relationship, but will be fodder for some interesting conversation. I'd love to read a fuller explanation of "demand leakage".The shortfall experienced with trade deficits isn't in any way made up for by the sale of treasuries. Dollars don't matter much here - the shortfall comes in the form of a demand leakage. Some of our national income has been spent on foreign goods, and not all of it has been returned by buying our exports; this loss of demand is made up for by a combination of deficit spending and increased public sector debt, both of which add to GDP. The result is an increase in treasuries held by foreign parties, which is more or less permanent (we'll see about that permanence sometime soon if trump's tariff war drags out).
My quibble: what is "investment"?
In a way, all investment is "parking dollars". Sometimes, more effectively than others. We call it "capitalism", using excess "capital" by "investing" it, and getting a "return" on investment. The form of return varies based upon the kind of investment. But, the basic concept is to use "investment" as a medium of exchanging value for value. (I'm ignoring for now the problems with this exchange of value and the distortions of the economy which occurr.)
So, buying Treasuries is, in fact, investing. They are "parked" to get a "return". Dollars run to safety, and, until presently, US Treasuries are considered one of safest of investments.
I'm not sure I follow the concept, so I'm not sure I disagree... or agree? I tend, however to disagree that banks are "creating money." Rather, I think they are siphoning value from other people's money. We often, however, conflate the concepts of saving and investment - or artificially segregate different forms of investment. We'll have to explore that further. I can get passionate about how bad the financial sector can be for the community - taking advantage of the privileged position their function has for the economy.
Here I fundamentally disagree (I think). It's a far more convoluted and complex relationship, but will be fodder for some interesting conversation. I'd love to read a fuller explanation of "demand leakage".
Hmm. Still disagree. I do have significant concern about the distortions in the economy created by "financial institutions", but I do not agree - seriously object - to the assertion that Treasuries are not an investment. Many of those Treasuries support infrastructure investment and a significant number of consumer's salaries.I'm talking about real investment, investing money for the production of a good or service. If money isn't going to a company, it's not real investment. Buying stocks secondhand - not real investment. Buying an IPO - real investment. Buying a treasury, no, buying a corporate bond, yes.
Not necessarily. The government is a significant participant in both the domestic and international economies. Government contracts alone support several industry segments, and in many the government is the prime participant (think "Military- Industrial Complex"). Treasuries support many of those activities.Here's the difference between treasuries and other investments: when you buy a treasury, the dollars leave the economy. When you buy anything else, your dollars just end up in somebody else's hands.
For the reasons above, I completely disagree. You are segregating one market segment and defining that as the "productive economy". Production doesn't occur without consumers. Service businesses make up a huge portion of GDP, not only in the United States, but in many countries around the world.Treasuries are "investments" in the personal finance sense, but as they do not go toward the production of anything, they are not the real investment I am talking about.
I'm going to look into this. I come from the financial planning side of things, so that's what affects my perspective.Here is the seminal paper on the subject, and it is quite recent, considering how long this question has been relevant.
There have been three main theories about banking; banks as financial intermediaries, fractional reserve, and credit creation. Up until fairly recently, you could find economists to back up any one of them; now, most are in agreement that the credit creation explanation is the one that fits the operational realities of banking.
Anyway, when banking was explained to me, a light came on. I think it's fascinating stuff, but few people share that enthusiasm.
Demand leakage comes straight from my first post about the circular flow of income. There is an explanation on the Wikipedia page, or I would be happy to talk about it myself.
Hmm. Still disagree. I do have significant concern about the distortions in the economy created by "financial institutions", but I do not agree - seriously object - to the assertion that Treasuries are not an investment. Many of those Treasuries support infrastructure investment and a significant number of consumer's salaries.
I guess my core objection is that your definition of "investment" is too narrow, but, at the same time, I agree that there is a significant difference between the "productive economy" and many businesses and economic activities that do not directly benefit the general economy (e.g. Hedge Funds).
Not necessarily. The government is a significant participant in both the domestic and international economies. Government contracts alone support several industry segments, and in many the government is the prime participant (think "Military- Industrial Complex"). Treasuries support many of those activities.
For the reasons above, I completely disagree. You are segregating one market segment and defining that as the "productive economy". Production doesn't occur without consumers. Service businesses make up a huge portion of GDP, not only in the United States, but in many countries around the world.
I'm going to look into this. I come from the financial planning side of things, so that's what affects my perspective.
I'll throw in my two cents worth. If I had to simplify capitalism into one sentence. it would be: "Get people working making good and services that others want and are willing to pay money for"
It's like trading somebody four quarters for a dollar so they can use a vending machine.
It's more like trading someone four quarters for $1.10 so that they can use the vending machine.
It is an investment from a personal finance standpoint, since you've made a 10% return on your investment. But it is also an investment in the real sense that you are talking about, even though it might not initially seem that way.
The person can't get their Tollhouse cookie without those quarters, and the machine won't take their bill or dime. By facilitating the transaction, you are setting a circulation of wealth in motion. The vending machine owner now has $1.00 more of income that they wouldn't have had if you hadn't traded your four quarters. If they spend that dollar on a cup of coffee, then the café owner has $1.00 more to spend on pizza. And then the pizzeria has $1.00 more to spend, etc.
So ultimately, while it facially seems like trading four quarters for a $1.10 so someone can use the vending machine is just shuffling money around, rather than a real investment, you have actually increased the GDP by $1 multiplied by whatever the spending multiplier is.
So at a MPC of 0.8, that trade of four quarters for $1.10 would have added $5 to the GDP.
In this analogy, the government also owns the vending machine. All of these hoops that they jump through to spend are self-imposed, but the end result is the same - the government creates and spends its own money, be it bonds or dollars. That's the important point here - operationally, a government with its own currency doesn't need bond buyers in order to finance itself. They are self-funding.
I'm talking about real investment, investing money for the production of a good or service. If money isn't going to a company, it's not real investment. Buying stocks secondhand - not real investment. Buying an IPO - real investment.
It's more like trading someone four quarters for $1.10 so that they can use the vending machine.
It is an investment from a personal finance standpoint, since you've made a 10% return on your investment. But it is also an investment in the real sense that you are talking about, even though it might not initially seem that way.
...
So at a MPC of 0.8, that trade of four quarters for $1.10 would have added $5 to the GDP.
I'm really a nerd, because this is fun! Y'all have introduced a couple of important concepts: The creation of money and the circulation of money in the economy. And, in a way, "how money is destroyed." There is a lot of theory involved in all of this, so I think maybe some definitions are in order to keep the players in mind.In this analogy, the government also owns the vending machine. All of these hoops that they jump through to spend are self-imposed, but the end result is the same - the government creates and spends its own money, be it bonds or dollars. That's the important point here - operationally, a government with its own currency doesn't need bond buyers in order to finance itself. They are self-funding.
Another important concept is
"Fractional-reserve banking is the system of banking in all countries worldwide, under which banks that take deposits from the public keep only part of their deposit liabilities in liquid assets as a reserve, typically lending the remainder to borrowers. Bank reserves are held as cash in the bank or as balances in the bank's account at the central bank. Fractional-reserve banking differs from the hypothetical alternative model, full-reserve banking, in which banks would keep all depositor funds on hand as reserves.
The country's central bank may determine a minimum amount that banks must hold in reserves, called the "reserve requirement" or "reserve ratio". Most commercial banks hold more than this minimum amount as excess reserves. Some countries, e.g. the core Anglosphere countries of the United States, the United Kingdom, Canada, Australia, and New Zealand, and the three Scandinavian countries, do not impose reserve requirements at all."
It is this "fractional reserve" system that creates issues with "bank runs" and "too big to fail" institutions. The bank literally does not hold sufficient funds to cover all deposits. But it is also how banks "create money" (as well as profits).
I posted all this to put a context under your discussion. Please proceed...
The government creates the currency, but not the value of the currency.
They are not self-funding because they still need investors, not to invest currency, but rather to invest the actual value that gives the currency they create its value equivalency.
But I was actually referring to money-shuffling in general. For example:
Suppose Jane invests her hard earned money in shares of SPY which John is selling. John then uses the proceeds to invest in an IPO.
Jane created the value through her labour, so her investment of value that she created is a real investment that is contributing value to the system.
In a sense, John is “merely” acting as a middleman between the value that Jane created and the company that the value is ultimately getting invested in. But without John, the investment may never have happened. Middlemen exist because they often add value to the system.
John and Jane are both investing in the sense of contributing to the system of facilitating production, as well as the sense of getting a personal return on their investment.
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