Braineack

iTrader: (62)

I meant people buying what others produce.

I was not advocating theft in order to payroll bad ideas.

Scrappy Jack

iTrader: (2)

I still can't figure out if people like Schiff use hyperbole ("China is rich and we are broke!" Treasuries going to zero, etc.) as a rhetorical shortcut or if they really do not understand the modern US monetary system.

I still don't think I am getting your point... I feel like I have the dumb today. Can you expound?

Schiff seems to be operating under the belief that there is "no money" to be lent. That is demonstrably false on multiple levels.




Sorry; I have monetary systems on the brain. When you said "no money behind the demand," you meant that "if there was no expectation of profit." I am with you now.

However, there can be expectation of profit and creation of product without actual demand. Again, it's nuance but worth disentangling.

JasonC SBB

You must hate reading the mainstream news media then, like me. I constantly see lies by omission.

Braineack

iTrader: (62)

poorly worded on my part.

Braineack

iTrader: (62)

He believes that since the interest rates are so low, that when they are finally raised, the banks will fail.He is saying that banks are borrowing money from the gov't at a low rate, then turning around and buying treasuries and making a guranteed profit from the same vessel they borrow from. If this practice stops, how will the banks have any profit since they've stopped lending to the ecomony. They are simply being propped up by debt and printing presses. This is hurting the recovery and benefiting a few at the cost of many.


I like hyperboles. I will point out more form video:
I think this sums up the video nicely:

"Republican presidential candidates would be wise to watch the video of Schiff’s Congressional testimony. They could help put an end to the idea that government simply needs to pick the right winners and losers, and more importantly that more money is what this country needs. Stimulus is great for those who get to play with other people’s money, earned through hard work, creativity, efficiency, ingenuity, and innovativeness. It’s easy to sit on a committee and take wealth from the places that produce the most of it and pass it out to your cronies or dependent constituents, and then threaten to cut the services people rely on most, like police and fire departments, as soon as someone suggests cutting the size of government"

Scrappy Jack

iTrader: (2)

I think Schiff has a lot of broad concepts correct and I don't dispute his banking concept in its entirety, but he either glosses over (via rhetorical laziness) or misunderstands some critical elements of the way the current USMS actually works. From what I gather, he seems to think that bond auctions and taxes fund government spending.

Braineack

iTrader: (62)

Another lier that hates America:


Coca-Cola chief criticises US tax rules
http://www.ft.com/intl/cms/s/0/071f9...#axzz1Z9usaTGu

gospeed81

iTrader: (51)

...

JasonC SBB

??? Pls. explain why you don't think this is correct.

Scrappy Jack

iTrader: (2)

When we enacted the Bush Tax Cuts or went to war in Iraq and Afghanistan, we didn't send China, Japan or US pension funds a budget for their line-item veto. We just spent the money.

The government bond market, as it exists today, is a monetary tool used to control interest rates. We spend first, then issue bonds to affect the level of reserves. I do understand there is a Congressional mandate which utilizes this as an accounting tool, but operationally, under the current US monetary system, it is not a funding tool.

Likewise, taxes serve to regulate aggregate demand not as a fiscal funding mechanism. Again, we spend first and tax later.


I will try to come back to cite some specific primary sources for this.

jacob300zx

Lol, we spend first huh? With what money?

Scrappy Jack

iTrader: (2)

The money created by the keystrokes of the government. The USA today (and other sovereign monopoly fiat currency issuers like Japan, Australia, Canada, the UK) does not operate like a household, a business or other currency users (like the EMU countries or the US states) or an asset-linked or currency-pegged monetary system (like the gold standard days). These governments spend by crediting bank accounts.

They spend first and then bonds are issued to drain reserves.


When a currency user wants to spend money, they either use savings or credit which is obtained first. If you (as a currency user) want to buy a car with a bank loan, you have to obtain the credit first. You fund first, then spend.

The loan creates a deposit. which is a liability for the bank and the loan is an asset. You have an asset (the deposit) and a corresponding liability (the loan). Net new financial assets? Zero.

The USA does not operate the same. It's the difference between vertical and horizontal money creation.

When the USA spends, the Treasury credits bank accounts (transferring reserves from their account at the Federal Reserve to the recipient's bank). There is no corresponding liability at this point. This is an increase in net financial assets.

We do not ask China to approve our spending. We spend first. With China, Japan, et al, they send us real goods and services and we send them electronic 0s and 1s.

Braineack

iTrader: (62)

AKA monopoly money:

Scrappy Jack

iTrader: (2)

If the government forced you to pay taxes only in monopoly money, it would be comparable. The main difference is that most of the money used and created today is now electronic rather than paper.

Braineack

iTrader: (62)

No $100 trillion banknote for us? how are we going to give the Zimbabwean dollar a run for its money.

mgeoffriau

iTrader: (7)

The phrases I bolded are my biggest problem with your explanation.

To claim that printing more currency (via electronic deposits) actually increases financial assets is misleading. No wealth is being created.

Braineack

iTrader: (62)

But Bernanke told me that the remedy for a burst bubble that was originally brought about by inflated fiat currency is more inflated fiat currency.

jacob300zx

The government doesn't create wealth.

Scrappy Jack

iTrader: (2)

The way to get to the Zimbabwean dollar or any other currency that has been rejected involves: dramatic regime change (i.e. representative democracy falling in a military coup being replaced with an autocratic dictator), owing debt denominated in something other than the fiat currency of which you are the monopoly issuer (such as gold-linked assets, or Weimar bonds denominated in Francs or Pounds or Belarussian dollar-denominated bonds) or a massive loss of productive capacity (such as France being nearly wiped out by Germany).

Sorry; do not confuse the technical term "net financial assets" with "wealth." Printing/keystroking money does not create wealth. If the government produces money (spends) significantly in excess of productive capacity, you get inflation. That devalues your purchasing power, making the money less valuable.

However, if the government does not spend the money in to existence first, there is no money for tax collection, bond purchases, etc.

mgeoffriau

iTrader: (7)

Which brings us right back to the issue of an unbalanced budget and deficit spending: either the debt obligations are not met, or we inflate the currency in order to do so.