Usa 'grows' It's Way Out Of Debt

[Dr_Mibbles]

No, that's just government debt.

What about total indebtedness? i.e government + businesses + personal.

What was the total indebtedness after WW2?

Mr. Krugman only provides half the numbers.

Sorry but I can't see what this had to do with our discussion about government spending. Yes, the private sector and households are indebted at historically high levels, which is why the economy is struggling as everyone tries to de-leverage at the same time.

This is another excellent reason why government spending is uniquely positioned to lift the economy, not only can the government harness the excess liquidity sloshing around looking for a home, but businesses and households are not going to do it, and someone needs to kick-start demand or we'll remain stagnated.

[Executive Sadman]

It should be obvious really. If greater money supply=greater wealth, Zimbabwe or Weimar Germany would be success stories. In fact, they are not, they were basket cases. On the contrary, countries with traditionally tight money supply policies (think Switzerland, Norway, Germany) are not only not the poorest, but the richest. Its quite simple, when something is scarce (money) it tends to find its way into the productive of uses. If fuel is cheap, you will waste it on a large V8 car and take lots of economically unproductive joy rights. If it is scarce and expensive, you will use it for things that provide the best economic return for you. Same goes for credit.

Money is no different to any other commodity, its worth is simply veiled from the public by its nominal vs real value.

[Dr_Mibbles]

Half?

If only, Private debt is about 4/5ths of the equation.

As Steve Keen notes, private sector debts and banks may as well not exist in Krugmans world. Its why Krugman is still scratching his head about Spain...how can it be, they had balanced budgets before 2008...

Krugman predicted exactly what would happen in Spain as a result of fiscal austerity and Euro membership, and he has been proven right at every turn.

But by contrast, the "expansionary austerity" bridage have had every single one of their predictions proved wrong. How much more of this nonsense do we have to take?

Krugman prediction was that if you have a private economy which is highly indebted and de-leveraging, you cannot also remove the prop of government spending without extremely bad consequences. He has been proved categorically right.

[marceau]

What question? All I see on page two are some completely incorrect GDP figures and a false correlation being drawn (US government spending is nothing like the figures quoted - use a credible source).

OK, let's take the link to Denninger: http://market-ticker.org/akcs-www?post=220813

Why are the figures in this link wrong? I genuinely want to know why you think they are wrong, because my reading of this is that the deficit figure you are promoting as proof of Keynsian success is an accounting trick. Am I wrong? If so, why?

[Guest_GradualCringe_*]

Sorry but I can't see what this had to do with our discussion about government spending. Yes, the private sector and households are indebted at historically high levels, which is why the economy is struggling as everyone tries to de-leverage at the same time.

This is another excellent reason why government spending is uniquely positioned to lift the economy, not only can the government harness the excess liquidity sloshing around looking for a home, but businesses and households are not going to do it, and someone needs to kick-start demand or we'll remain stagnated.

It has everything to do with it.

We need to deleverage and write down debt. People are trying to do this naturally.

The government are stopping that from occurring at all.

As the private sector deleverages, the government are taking on debt at almost an equal rate.

The logical conclusion is that the government will end up with all the debt, and the masses will still be liable, even those that chose not get into debt.

Going back to my previous point, by doing this, the government are fixing and distorting prices, which is distorting our actions and leading to supporting the consumption of the unproductive (financiers and land lords) at the expense of everybody else.

[Dr_Mibbles]

Based on that chart you could just as easily argue that spending reductions do not inhibit growth, employment and inflation.

Not if you're looking at the same chart as me. That is a debt-to-gdp ratio, not a government spending to gdp ratio.

[marceau]

Not if you're looking at the same chart as me. That is a debt-to-gdp ratio, not a government spending to gdp ratio.

So debt reduction was achieved through real terms spending increases? Intriguing.

[Dr_Mibbles]

We need to deleverage and write down debt. People are trying to do this naturally.

The government are stopping that from occurring at all.

As the private sector deleverages, the government are taking on debt at almost an equal rate.

If everyone de-leverages at the same time (businesses, consumers, government), you have total economic collapse. Highly destructive and completely unnecessary.

What we really need is a bit of inflation. That will erode the value of debt (as well as the relative cost of housing) and can be used to feed into policies such as full employment.

[Dr_Mibbles]

So debt reduction was achieved through real terms spending increases? Intriguing.

Debt reduction was achieved through inflation and a growing economy. It's a ratio. If the economy grows, your debt pile looks smaller relative to it.

And yes, government spending increased in real terms throughout that entire period.

[marceau]

Debt reduction was achieved through inflation and a growing economy. It's a ratio. If the economy grows, your debt pile looks smaller relative to it.

And yes, government spending increased in real terms throughout that entire period.

From the war time peak?

[Dr_Mibbles]

OK, let's take the link to Denninger: http://market-ticker.org/akcs-www?post=220813

Why are the figures in this link wrong? I genuinely want to know why you think they are wrong, because my reading of this is that the deficit figure you are promoting as proof of Keynsian success is an accounting trick. Am I wrong? If so, why?

That is not a credible source. Use official statistics, not tinfoil hat internet rage-nerd posts.

[Dr_Mibbles]

From the war time peak?

Yes.

[marceau]

That is not a credible source. Use official statistics, not tinfoil hat internet rage-nerd posts.

You say it is not credible. Why?

Disprove it.

Attacking the source isn't good enough.

[marceau]

Yes.

So, to be clear, you are saying there was at no stage a real-terms spending reduction following WW2. Do you have a citation?

[Executive Sadman]

Sorry but I can't see what this had to do with our discussion about government spending. Yes, the private sector and households are indebted at historically high levels, which is why the economy is struggling as everyone tries to de-leverage at the same time.

This is another excellent reason why government spending is uniquely positioned to lift the economy, not only can the government harness the excess liquidity sloshing around looking for a home, but businesses and households are not going to do it, and someone needs to kick-start demand or we'll remain stagnated.

A unit of privately created credit spends into the economy exactly the same as a unit of government created debt.

If the private sector is increasing the money supply at over 10% a year for decades, (as has been the case) in a mixed economy, inevitably somewhere around half of that ends up in government coffers, (private debt has been essential to govt spending) as it circulates around the economy and is taken as taxes. When the private sector stops creating that credit, because, as in 2008, people can no longer afford it, a government revenue source is cut off. So they have no choice but to either accept deflation and defaults, or else assume the role of creating credit. The problem arises when you consider credit creation has been exponential, but GDP creation only Linear (and wages below that). So we are presented with a situtation where Debt continually runs away from GDP - the private sector isnt deleveraging anywhere near as fast as the government is creating new debts.

So you really cant separate (or, in Krugmans case, outright ignore) the role of private debt. Its not even limited to that - In a legal sense, when Brown decided it would be a jolly good idea for the taxpayer to guarantee all private debts, it is thus in effect government/national debt.

Its for the US, but the UK will look similar/worse

http://market-ticker.org/akcs-www?singlepost=2138740

[Executive Sadman]

That is not a credible source. Use official statistics, not tinfoil hat internet rage-nerd posts.

Great Reposte. Im pretty sure Mr Denninger uses officially sourced data.

[(Blizzard)]

You have undermined your own argument, we cannot decide these things sensibly becase a small elite force what's best for them on to everybody else.

And how have a small elite maintained their position (when in 2008 they stood to lose everything)? Through fraudulent monetary policy to enable deficit spending aimed at their sycophants and supporters.

I wouldn't dispute that, but that doesn't help us decide whether deficit spending can, or cannot, fix the economy (or rather, improve people's living standards, which is the real point of all this.)

Just because people have choked on sandwiches, doesn't mean sandwiches aren't food.

[Executive Sadman]

Krugman predicted exactly what would happen in Spain as a result of fiscal austerity and Euro membership, and he has been proven right at every turn.

But by contrast, the "expansionary austerity" bridage have had every single one of their predictions proved wrong. How much more of this nonsense do we have to take?

Krugman prediction was that if you have a private economy which is highly indebted and de-leveraging, you cannot also remove the prop of government spending without extremely bad consequences. He has been proved categorically right.

You dont think it could be they spent too much in the first place?

I dont get this whole "we'd rather carry on spending too much on things because we dont want to lose face admitting spending was too high for the last ten years"

Spain is just seeing today what the rest of us will see in a few years. There is a difference between 'avoiding' something, and 'delaying' something.

[(Blizzard)]

I agree with some of what you say, however you haven't made the (in my view) obvious link between the problems you mention and the solutions - like house building, infrastructure investement, which the government could do by borrowing at record low rates...

Yes, but there are an equal number of cuts that should be made - housing benefit, tax credits, military spending. That's the point, it isn't 'how much should the government do' it is 'what should the government do'. I don't know, or care, how these net out.

Since the conversation has moved on a bit, I'll add that a correlation between measured economic growth and policy A is of no interest to me unless you can show a correlation between measured economic growth and the general standard of living, and you can show me that such growth is sustainable.

We had economic growth for 10 years. It mostly benefited a small group of very rich people, made many things worse for the majority, and led to where we are now.

[marceau]

Since the conversation has moved on a bit, I'll add that a correlation between measured economic growth and policy A is of no interest to me unless you can show a correlation between measured economic growth and the general standard of living, and you can show me that such growth is sustainable.

This is the crux of the matter. Nowhere in the west do I see improved living standards, rising real wages, lower cost of living, lower taxation. If the aim is to chase GDP then fine, spend until you are blue in the face, all your GDP wishes will come true.

I should find common cause with the likes of Krugman and the MMT crowd, but instead I find them infuriating. I agree with infrastructure spending, state run services, redistribution of tax revenue to help those in need. But when you actaully look at what they are offering it is really none of those things, it is more money channeled to certain groups at the expense of others, more cash for vested interests. What they are actually offering is extortive, and all the sophistry in the world doesn't provide a big enough fig leaf to cover the giant throbbing member they will shaft the little guy with if they continue to get their way.

Hence my question about unfunded tax cuts? Why does it always have to be spending? My thoughts lean heavily towards a form of rent-seeking as the answer. Privilage protecting privilage, dressed up as virtue.

[Dr_Mibbles]

You say it is not credible. Why?

Disprove it.

Attacking the source isn't good enough.

Because the figures are completely different to those provided by recognised, credible institutions whose job it is to provide accurate statistics and have a great track record in doing so. If you're going to post some blogger as your evidence, you had better be prepared to be challenged on that.

[marceau]

Because the figures are completely different to those provided by recognised, credible institutions whose job it is to provide accurate statistics and have a great track record in doing so. If you're going to post some blogger as your evidence, you had better be prepared to be challenged on that.

There aren't too many figures in this post. Which ones aren't correct?

You are the one using figures to support your position, and I'm the one challenging, let's get this the right way round.

[Bloo Loo]

snip

But by contrast, the "expansionary austerity" bridage have had every single one of their predictions proved wrong. How much more of this nonsense do we have to take?

Krugman prediction was that if you have a private economy which is highly indebted and de-leveraging, you cannot also remove the prop of government spending without extremely bad consequences. He has been proved categorically right.

para 1...what "expansionary austerity" bridage?

Krugman predicts that if a figure of measurement is acheived by doing x, and that aim is acheived, it is clear that removing x, will result in the figure of measurement changing, probably back to reality.

That is really a simplistic argument based on Historic mistakes.....all Krugman argues is that the mistake must continue otherwise the GDP will suffer.

That is no cure...that is injecting more poison into the wound.

Krugman et al beleive we can grow forever. NOTHING does.

[Dr_Mibbles]

So, to be clear, you are saying there was at no stage a real-terms spending reduction following WW2. Do you have a citation?

and let's remind ourselves what happened to debt during this time:

[Bloo Loo]

and let's remind ourselves what happened to debt during this time:

debt isincluded in the GDP....so increasing the debt will increase the GDP....these percentages are there for political justification only...as is GDP.