Unemployment Extension "died in the Senate"

[phattonez]

And with all the product yiou want there other costs involved beyond that of labour. The plastic in the TV, the glass for the flat screen, the ceramic pot for the plant, the costs of transportation from the factory to the store to your house. With all of those costs you have to determine which goods and services you want the most.

There is scarcity in the factors of production, which is why we need failing business to fail and profiting business to expand so that we don't produce more of the things that people have enough of and produce more of the things that people want.

With lower labour costs you may have the ability to choose more products, or you may choose to save your money, and not spend it on goods or services this year or even next year. But wait to make a big purchase in a few years.

The most important part here is that with more labor, we get a greater supply of goods than we currently have, lowering prices for everyone.

This will take money out of the economic system, reducing demand leading. This is part of the economic cycle and is part of the reason why unemployement can go up or down in various years as demand can vary depending on savings, vs spending. When an economy saves more then it spends demand goes down, when an economy in a given year spends more then it saves demand goes up.

This is actually one of the greatest flaws of the new economics. Money saved is not taken out of the economy. Some important things about saved money:

1. It is always spent.
2. It takes money out of the economy making the value of money higher for everyone else.
3. It allows for capital investment so that people can consume while waiting for an investment to pay off (you can't build a reaper if you have no food to eat while you're building it).

In a perfect economy, the overall savings rate would be zero as the saving by some would be match by the spending of others. (in such cases spending would also include spendin on capital equipment).

Huh? If people save then there is savings. Savings and spending being equal means that you still have saving.

But economies are not perfect, you can have an economy saving far more then it spends leading to a reduction in overall demand or an economy can spend far more then it saves leading to excess demand. In each case the demand for labour (or the supply of jobs) will vary.

People save because of time preference, meaning that they save because they expect greater satisfaction in the future. You need production for this to be true, production of the things that people want.

 

[phattonez]

Hmm, I have all of those things already. Maybe that's the reason that I waste my time on this forum while I am at work rather than trying to make more money. My desires for physical posessions have pretty much all been met. More evidence that there is not unlimited demand. At this point in my life, my larges unfullfilled need is long term financial security.

When the price of new things falls enough, you may think about working more again. With more production that will happen. No one today would accept the life of an ancient Greek pauper. They will work rather than live like that. If you're satisfied, then good for you. People out there are still not, so people will work to satisfy those demands. As long as you want, you will work. And as long as others want, they will work to fill your demands.

 

[Lord Tammerlain]

There is scarcity in the factors of production, which is why we need failing business to fail and profiting business to expand so that we don't produce more of the things that people have enough of and produce more of the things that people want.

I have not argued about preventing business's from failing

The most important part here is that with more labor, we get a greater supply of goods than we currently have, lowering prices for everyone.



This is actually one of the greatest flaws of the new economics. Money saved is not taken out of the economy. Some important things about saved money:

1. It is always spent.
2. It takes money out of the economy making the value of money higher for everyone else.
3. It allows for capital investment so that people can consume while waiting for an investment to pay off (you can't build a reaper if you have no food to eat while you're building it

Eventually it is spent yes, it may not always be spent in the year it is saved or even the year after. If a large number of people save in a given time period you get an economic contraction, just as later if those same people spend what they have saved in a given time period you will have an expansion large then otherwise would have occured. The capital investment of course is one of the functions of savings allowing for banks to lend out money for such actions. However, the willingness to lend and the willingness to borrow vary over time as well. At certain points in the economic cycle you could end with more money being saved then being lent out

Huh? If people save then there is savings. Savings and spending being equal means that you still have saving.

Ideally the amount of saving and borrowing in an economy would be equal over time to limit booms and busts from credit cycles. As most borrowed money is going to be spent on something, it would mean that money is not being taken out of an economy.

People save because of time preference, meaning that they save because they expect greater satisfaction in the future. You need production for this to be true, production of the things that people want.

Yes people save because of time preferences. If a significant proportion of the population decide to save for something they wish to buy in the future, demand in the present goes down. Lower demand lower production. Using the same scenario, in the future when those people decide to use what they have saved for consumption they increase demand greatly, leading to higher production. It is the variance in saving/spending that is a primary factor in economic cycles.

 

[phattonez]

I have not argued about preventing business's from failing
Eventually it is spent yes, it may not always be spent in the year it is saved or even the year after. If a large number of people save in a given time period you get an economic contraction, just as later if those same people spend what they have saved in a given time period you will have an expansion large then otherwise would have occured. The capital investment of course is one of the functions of savings allowing for banks to lend out money for such actions. However, the willingness to lend and the willingness to borrow vary over time as well. At certain points in the economic cycle you could end with more money being saved then being lent out

Because at some point the risk of lending would be so high that the interest rate would have to be too high so that the borrower would not even take the loan. I mean, it's not a good idea to loan the money in your savings account to some guy who is just barely keeping his house, is it?

So even this money that is not fit to lend still has a benefit: they make the bills currently in circulation worth more.

Ideally the amount of saving and borrowing in an economy would be equal over time to limit booms and busts from credit cycles. As most borrowed money is going to be spent on something, it would mean that money is not being taken out of an economy.

I'm not seeing this equation that would make this so.

Yes people save because of time preferences. If a significant proportion of the population decide to save for something they wish to buy in the future, demand in the present goes down. Lower demand lower production. Using the same scenario, in the future when those people decide to use what they have saved for consumption they increase demand greatly, leading to higher production. It is the variance in saving/spending that is a primary factor in economic cycles.

This theory ignores capital formation. If demand rises, businesses can't increase production if they can't invest in capital goods. They would be stuck at current production and you would just get a shortage. This is the main problem with the idea of circular flow: it ignores capital formation.

 

[Lord Tammerlain]

Because at some point the risk of lending would be so high that the interest rate would have to be too high so that the borrower would not even take the loan. I mean, it's not a good idea to loan the money in your savings account to some guy who is just barely keeping his house, is it?

So even this money that is not fit to lend still has a benefit: they make the bills currently in circulation worth more.



I'm not seeing this equation that would make this so.



This theory ignores capital formation. If demand rises, businesses can't increase production if they can't invest in capital goods. They would be stuck at current production and you would just get a shortage. This is the main problem with the idea of circular flow: it ignores capital formation.

I dont have the equation but I do have a thread in which tend to agree., A thread that you created

http://www.debatepolitics.com/econo...ment-would-stagnate-economy-au-contraire.html

 

[phattonez]

I think I see what you're saying now, that everything that is saved would be lent?

 

[Lord Tammerlain]

I think I see what you're saying now, that everything that is saved would be lent?

Yes in a "perfect" economy" everything saved would be lent in the same time period

 

[phattonez]

I'm not so sure that's perfect, because that's a great recipe for a bank run which will lead to bank failures.

 

[Lord Tammerlain]

I'm not so sure that's perfect, because that's a great recipe for a bank run which will lead to bank failures.

Excluding a required amount of reserves of course

 

[phattonez]

And what should that reserve ratio be? Should it be different depending on the interest rates the bank offers? The interest that it offers to depositors?

 

[Kushinator]

And what should that reserve ratio be? Should it be different depending on the interest rates the bank offers? The interest that it offers to depositors?

What is the real interest rate during periods of deflation or low/zero inflation? Generally speaking.

 

[imagep]

And what should that reserve ratio be? Should it be different depending on the interest rates the bank offers? The interest that it offers to depositors?

Who knows. I would assume whatever amount would prevent a bank from defaulting on demand deposits on their most likely day of having demands for money.

By the way, on the 11pm news last night it was annouced that MY bank had been shut down. Wasn't totally a shock, I had already predicted that. I rushed down to the bank's headquarters to see if it was true that they come in and lock the place up tight and cart out all of the documents. It is true, there were a dozen police cars there (about midnite), a large box truck that said on the side that it was an ice cream delivery truck (although it obviously was not refridgerated), and a dozen unmarked autos. All the lights were own and there were guards at the door. I also drove by a branch office and it did not look quite as busy, but there were two state trouper cars parked in front of it and a long line of cars going through the autmated teller. their web site said that they would reopen on Monday operated by a "reciever" bank from out of state.

My business account, my commercial morgage, my sons account, and even my wifes 501c charity account are all at that bank. It isn't just the big banks that are failing. that bank only had about a dozen locations.

 

[imagep]

What is the real interest rate during periods of deflation or low/zero inflation? Generally speaking.

It would be amuzing if they paid minus 2% interest. Like for every $100 you had in your account, they took $2 from you. Of course that would likly be the end of our banking system and possibly capitalism as we know it.

What if you were overdrawn, would they then have to give you interest on the amount you were overdrawn?

 

[phattonez]

What is the real interest rate during periods of deflation or low/zero inflation? Generally speaking.

This seems like a question (trying to trap me in a corner) that is better suited for my thread about a 100% reserve requirement.