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Old 03-21-2012, 03:20 AM   #1
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Default Scrappy: Scenario of "run" on US Treasury

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Old 03-21-2012, 03:37 AM   #2
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Comments?
Interesting that the one ad on that page is a link where, for $47, you can purchase a set of plans to build a perpetual motion device, thus enabling you to "generate 100% free electricity."
"Energy companies are scared that people will learn how to produce Free Electricity for their homes using this unique device."
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Old 03-21-2012, 03:39 AM   #3
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tl;dr
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Old 03-21-2012, 04:17 AM   #4
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Interesting that the one ad on that page is a link where, for $47, you can purchase a set of plans to build a perpetual motion device, thus enabling you to "generate 100% free electricity."
"Energy companies are scared that people will learn how to produce Free Electricity for their homes using this unique device."
??? Must be targeted at you. I see an ad for a Mazda6 and some kind of financial product.
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Old 03-21-2012, 04:46 AM   #5
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Originally Posted by Joe Perez View Post
Interesting that the one ad on that page is a link where, for $47, you can purchase a set of plans to build a perpetual motion device, thus enabling you to "generate 100% free electricity."
"Energy companies are scared that people will learn how to produce Free Electricity for their homes using this unique device."
When I read "free energy" I think energy created from nothing. Interestingly, getting something from nothing seems to be how a lot of people think we can get out of debt, ie, keep doing things the way we are except cut some gov organizations, get rid of welfare, don't raise taxes/lower taxes and we'll be out of debt.

But about the posted link, that sight doesn't look 100% legit to me.
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Old 03-21-2012, 10:39 AM   #6
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As you understand it, the gist is?
  • China will stop buying US government securities
  • This will reduce short-term liquidity for the US government, causing the US government to be short of the dollars it needs for spending
  • The Fed and the Treasury will then work together to provide the US dollars the US government needs for spending
  • This will cause the NY Fed branch to sink through the Earth, coming out the other end in China

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For as long as the dollar remains the primary currency of oil-exporting nations, oil-importing nations will buy dollars. There is an incentive to get dollars by selling to the USA. But the risk of continuing to hold T-debt is growing.
There is either a key misunderstanding or intentional omission in this relationship. China and oil-exporting nations have an incentive to receive dollars because we are one of the largest markets in the world. So long as China wants to sell real goods and services to us, Germany wants to sell VWs and BMWs and Siemens power generating equipment and so long as Saudi Arabia wants to sell oil to us, those countries will receive US dollars.


Penultimately, regarding China's reduction in US Treasury holdings.

A) What impact did that have on US Treasury interest rates?
B) How has their holding of US agency securities changed during that time frame?

Finally...

Quote:
That will be played out again on a vastly larger scale when the Treasury's checks bounce.
Checks bounce when there is no money to cover them. The above quote implies the US government will run out of US dollars. For people that bitch about "printing money," some of these Austrians have some serious cognitive dissonance.
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Old 03-21-2012, 12:43 PM   #7
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Originally Posted by Scrappy Jack View Post
As you understand it, the gist is?
  • China will stop buying US government securities
  • This will reduce short-term liquidity for the US government, causing the US government to be short of the dollars it needs for spending
  • The Fed and the Treasury will then work together to provide the US dollars the US government needs for spending
  • This will cause the NY Fed branch to sink through the Earth, coming out the other end in China
You missed the step where he said that the Fed will have to buy debt (causing inflation).

Quote:
There is either a key misunderstanding or intentional omission in this relationship. China and oil-exporting nations have an incentive to receive dollars because we are one of the largest markets in the world. So long as China wants to sell real goods and services to us, Germany wants to sell VWs and BMWs and Siemens power generating equipment and so long as Saudi Arabia wants to sell oil to us, those countries will receive US dollars.
So why can't they go ahead and sell stuff and maintain no export surplus and thus (1) keep no net USD, as well as (2) buy no debt? I don't understand your point that a trading partner has to buy debt simply to be able to trade.

Quote:
Penultimately, regarding China's reduction in US Treasury holdings.

A) What impact did that have on US Treasury interest rates?
B) How has their holding of US agency securities changed during that time frame?
In his explanation of the scenario, just like Bear Sterns and Lehman Bros, at first nothing much.


Quote:
Checks bounce when there is no money to cover them. The above quote implies the US government will run out of US dollars. For people that bitch about "printing money," some of these Austrians have some serious cognitive dissonance.
He said that figuratively. He has said that as demand for US debt dwindles the Fed Res will have to inflate. And they will inflate and inflate, but NOT hyperinflate. And simply because at some point the deficit growth (which has no sign of stopping) cannot be funded by inflation any more, the Fed Gov *must* selectively default on their promises. (Note I said deficit, not debt, as MMT'ers point out that the debt can stay forever, as long as the interest is serviced).

I want to understand how MMT'ers believe the deficit will ever be reigned in. Thus far the deficit has been growing at 7% and tax collection at 2%, IIRC. And AFAIK you and I agree that as the gov't takes over a larger % of the economy, real productivity will decrease.

Last edited by JasonC SBB; 03-21-2012 at 12:55 PM.
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Old 03-21-2012, 12:47 PM   #8
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The deficit's growth has been steadily slowing since the record-busting Bush budget, Jason.

You don't see much reporting on it, however, as it destroys the current established acceptable commentary from most news sources.

http://www.nytimes.com/2011/07/24/op...ay/24sun4.html

It would be very easy to have a balanced budget today, but pulling out of all the wars we are in and repealing the Bush tax cuts are unpopular with Republicans.
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Old 03-21-2012, 01:05 PM   #9
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blaen,

I'll assume it's true the *growth rate* of the deficit has been slowing. That's like saying you are now slowly releasing the gas pedal, but still accelerating, and you are now past double the speed limit.

1) What amount of deficit is *sustainable* as per the MMT'ers? I assume historically it's less than it is today. Which means the deficit needs to shrink back down to what it used to be, from what it is today.

2) Stop being so partisan. Obama has already out-Bushed Bush, in terms of bailouts, expenditures, gov't expansion, trampling of civil liberties, and gov't secrecy.

3) What are you going to do about Medicare and SS? We are on track to having just 2 productive workers for every retiree (it was 5:1 when SS was started).
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Old 03-21-2012, 01:07 PM   #10
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Originally Posted by JasonC SBB View Post
blaen,

I'll assume it's true the *growth rate* of the deficit has been slowing. That's like saying you are now slowly releasing the gas pedal, but still accelerating, and you are now past double the speed limit.

1) What amount of deficit is *sustainable* as per the MMT'ers? I assume historically it's less than it is today. Which means the deficit needs to shrink back down to what it used to be, from what it is today.

2) Stop being so partisan. Obama has already out-Bushed Bush, in terms of bailouts, expenditures, gov't expansion, trampling of civil liberties, and gov't secrecy.

3) What are you going to do about Medicare and SS? We are on track to having just 2 productive workers for every retiree (it was 5:1 when SS was started).
http://www.washingtonpost.com/blogs/...BchQ_blog.html

This is a hard-right website that prides itself on being to the right of Fox, Jason.

Is it partisan to argue simple numbers? Seriously, it's getting to the point now from some of you that I can't wait to get a new president in, so you can stop trotting out the tired old partisan accusations. I got the same crap when Bush was in office as well. Arguing that Bush shouldn't be blamed for Clinton's actions is about as partisan as arguing that Obama shouldn't be blamed for Bush's actions.

Last edited by blaen99; 03-21-2012 at 01:17 PM.
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Old 03-21-2012, 01:38 PM   #11
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Originally Posted by Shearhead_3:16 View Post
When I read "free energy" I think energy created from nothing. Interestingly, getting something from nothing seems to be how a lot of people think we can get out of debt, ie, keep doing things the way we are except cut some gov organizations, get rid of welfare, don't raise taxes/lower taxes and we'll be out of debt.
Yeah, that's kind of the point.

The "free energy" device that they're trying to sell is allegedly being "suppressed" by the big electric providers. And that makes no sense at all.

Power companies purchase lots of expensive fossil fuels (coal, oil, natgas) to burn in their generating plants, and then spend lots more money upgrading said plants to reduce emissions, pay for carbon sequestration, lobby congress for exemptions to emissions regulations, etc.

If a device existed which allowed electricity to be generated for free (by "cheating the laws of thermodynamics", if I recall correctly) then the power companies would not be suppressing it, they'd be buying or building 'em faster than you can say "conspiracy theory." Within twelve months, there would not be a single nuclear or fossil-fuel power plant left in the entire world, and the "evil power companies" would all be laughing their aѕses off selling us electricity which cost them absolutely nothing to produce and created no emissions whatsoever.


Given this, I simply cannot take seriously any economic advice proffered by a man who clearly lacks even the most fundamental understanding of economics.
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Old 03-21-2012, 01:39 PM   #12
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Given this, I simply cannot take seriously any economic advice proffered by a man who clearly lacks even the most fundamental understanding of economics.
The fundamental understanding of accepting advertising money from whoever wants to pay him to post banner ads on his website? Seems pretty clear-cut to me.
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Old 03-21-2012, 02:32 PM   #13
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Originally Posted by JasonC SBB View Post
You missed the step where he said that the Fed will have to buy debt (causing inflation).
Clarify for me your definition of "inflate." In what way does the Federal Reserve buying US Treasury securities cause this inflation? What is the mechanism that gets you from A (Federal Reserve actions) to B (inflation)?

Quote:
Originally Posted by JasonC SBB View Post
So why can't they go ahead and sell stuff and maintain no export surplus and thus (1) keep no net USD, as well as (2) buy no debt? I don't understand your point that a trading partner has to buy debt simply to be able to trade.
They don't have to buy US Treasury securities, but they do have to take US dollars. They can do whatever they want (within legal restrictions) with the dollars, but they will take them as long as they want to sell to the USA.

The question will then become, what do they do with their US dollars (e.g. checking account)? Some will decide to put them in a savings account (e.g. US Treasuries or agencies). Others will decide to put those dollars in to various other products or items.

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Originally Posted by JasonC SBB View Post
In his explanation of the scenario, just like Bear Sterns and Lehman Bros, at first nothing much.
The problem I have with the Lehman/Bear Stearns comparison is that, as I would suggest, he correctly paints their problem as one of liquidity or solvency. In layman's terms, they ran out of access to short-term credit markets which they used to source US dollars to pay their short-term loans.


Explain to me how the US government runs out of access to US dollars.


Quote:
Originally Posted by JasonC SBB View Post
He said that figuratively. He has said that as demand for US debt dwindles the Fed Res will have to inflate. And they will inflate and inflate, but NOT hyperinflate.
I'm going to wait for your definition of inflation before I address this next part.
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Old 03-21-2012, 03:18 PM   #14
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The fundamental understanding of accepting advertising money from whoever wants to pay him to post banner ads on his website? Seems pretty clear-cut to me.
If you want people to take your websight or magazine seriously then you have to get sponsors who at least look legit and don't post their banners on websites frequented by those who tevo "Ancient Aliens". I know yeah gotta make money, but at a point your doing harm long term, look at the adds in "Car & Drive", the weird sh*t doesn't show up until the very back of the magazine where there are no car reviews anyway, they strike a nice balance.
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Old 03-21-2012, 03:29 PM   #15
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Originally Posted by Shearhead_3:16 View Post
If you want people to take your websight or magazine seriously then you have to get sponsors who at least look legit and don't post their banners on websites frequented by those who tevo "Ancient Aliens". I know yeah gotta make money, but at a point your doing harm long term, look at the adds in "Car & Drive", the weird sh*t doesn't show up until the very back of the magazine where there are no car reviews anyway, they strike a nice balance.
Yeah, just like the "Trainers hate this guy! Massive muscles NOW!" banner ads I see on Yahoo.com.
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Old 03-21-2012, 03:45 PM   #16
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At last the laws of physics don't bar trainers from hating that guy.
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Old 03-21-2012, 03:59 PM   #17
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You missed the step where he said that the Fed will have to buy debt (causing inflation).
Bernanke doesn't believe there's any inflation.
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Old 03-23-2012, 07:53 PM   #18
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Called out and answered.

Where ist thine riposte, good sir?
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Old 03-23-2012, 10:29 PM   #19
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Bernanke doesn't believe there's any inflation.
Bernanke's a ------- muppet.
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Old 03-27-2012, 12:57 PM   #20
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Clarify for me your definition of "inflate." In what way does the Federal Reserve buying US Treasury securities cause this inflation? What is the mechanism that gets you from A (Federal Reserve actions) to B (inflation)?
Fed Res increases supply of "high powered money", which ends up as extra reserves at the banks, which gets lent out, increasing the money supply, decreasing its value.

Quote:
The problem I have with the Lehman/Bear Stearns comparison is that, as I would suggest, he correctly paints their problem as one of liquidity or solvency. In layman's terms, they ran out of access to short-term credit markets which they used to source US dollars to pay their short-term loans. Explain to me how the US government runs out of access to US dollars.
Fed Res needs to increase the supply of high powered money.
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