just_sayin' Loc: Former United States of America

A friend writes...

THE DEBT CEILING

I love it when a complicated situation can be explained in such simple terms!

* Democrats don't understand THE DEBT CEILING

* Republicans don't understand THE DEBT CEILING

* Liberals don't understand THE DEBT CEILING

* NO ONE understands THE DEBT CEILING

* SO, allow me to explain.
Let's say you come home from work and find there has been a sewer backup in your
neighborhood.
Your home has sewage all the way up to your ceiling.
What do you think you should do?

1. raise the ceiling,

or

2. pump out the shit?

Your choice is coming in November

bahmer

The democrats and liberals will raise the ceiling. Any questions?

karpenter Loc: Headin' Fer Da Hills !!

Everyone Is Handy At Raising It.
The Purpose Of The Debt Ceiling Has Never Been Invoked.
It Just Keeps Growing Like Jack's Bean Stalk....
Except When Jack Gets To The Top
There Will Be Nothing There To Steal

Winter Solstice Loc: Salt Lake City

If only my choice matters. In November, even if we elect 100% new representation, the Debt Ceiling will still get raised again before Obama leaves office in 2016.

MarvinSussman

MACROECONOMICS FOR MORONS - PART I

In our past, Congress’ failure to regulate the banks caused harmful inflation. For stability, the government fixed the dollar’s value at a certain price of gold and promised to redeem dollars at that price with gold from its store. The gold standard worked fairly well except for a serious problem.

Due to frequent budget deficits, the public’s money supply grew faster than the government’s gold supply. To prevent depletion of the gold supply as wealthy savers redeemed gold with their excess paper currency, the Treasury auctioned enough interest-bearing treasuries to recapture the annual budget deficit from the savers. The debt interest expense became part of the annual federal budget.

But there was another problem. Due to frequent annual trade deficits, foreign exporters with excess US dollars redeemed enough gold to threaten the US gold supply. Eventually, Nixon had to end the gold standard. Since 1973, Congress spends fiat currency but has misunderstood the limit to its spending.
To explain fiat currency, a counter-factual Pilgrim history, one that could have happened and would have produced a society richer than the real one, is described here:

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On landing at Plymouth Rock, the governor printed fiat money to pay for the goods and services to be supplied by colonists during the year. The colonists valued the money and worked hard for it because, at the end of the year, they would have to pay taxes or endure serious punishment.

For each year’s budget, the governor estimated the man-hours available during the year and multiplied that number by an hourly wage to arrive at the annual budget. During the year, he hired everyone available to build wells, roads, buildings, and other infrastructure. If he had underestimated the man-hours available during the year, he simply printed more money. Unemployment did not exist because of the infinite need for new or renewed infrastructure.

To avoid inflation and eventual hyper-inflation, the governor, at the end of the year, estimated, imposed, and collected a household tax that repossessed most of his spending. The uncollected spending became the colonists’ savings. Budget deficits = private sector savings which are essential for an economy. An annual balanced budget would have created a bartering economy with no medium of exchange! Colonists combined their savings to create private corporations, including lending banks regulated by the governor to prevent inflation.
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This counter-factual history explains why fiat money allows Congress to fully employ our resources. Like the fictional colony, Congress NEVER asks the Treasury if it has enough money. Congress spends as it wishes and retakes over 85% of it with taxes to avoid inflation. But, by not understanding its spending limits, Congress creates unemployment instead of infrastructure.

With no need to protect a gold supply, there is no need to recapture the deficit with US Treasury auctions. The Treasury could simply auction enough treasuries to serve our economy’s need for risk-free interest-bearing instruments. Such minimal auctioning would end the “unsustainable debt” scam crafted by Wall Street oligarchs to privatize Social Security and gain a fortune in broker commissions.

That which we call a “federal budget deficit” is nothing more than the annual savings retained by the private sector when Congress spends more than it taxes. Until we are threatened by harmful inflation, private savings are essential for prosperity and spending is needed for infrastructure. Absent such inflation, deficits are beneficial.

Almost all US voters wrongly believe that federal taxes pay for federal spending. This myth vanishes in every war and serious crisis, corrupts political dialogue, and promotes austere budgets. Voters hold this false belief only because they do not understand that, as an issuer of fiat currency, Congress is not bound by the “balance the budget” logic of a household or a business. Regardless of tax revenue, Congress can always hire resources left idle by private industry. The two fiscal mandates for Congress are exactly the two monetary mandates that Congress demands from the Fed: Avoid serious unemployment’’ and ‘’Avoid harmful inflation!” The simultaneous existence of serious unemployment and low inflation is due only to lack of Congressional spending on much-needed infrastructure.

Ideally, to maximize the nation’s wealth by seizing opportunities, Congress must balance two financial goals: (1) spend almost enough to cause harmful inflation; (2) tax only enough to avoid harmful inflation. Congress’ fiscal target is the onset of harmful inflation. (The Fed cannot reach its 2% minimum.)

Until we are threatened by harmful inflation, Congress is obliged by our Constitution’s preamble “to …promote the general Welfare and secure the Blessings of Liberty to ourselves and our Posterity…” When private industry does not fully employ the nation’s resources, it is the duty of Congress to use the nation’s idle resources to build infrastructure.

An intelligent, rational, informed citizen would vote to remove the deficit hawks from Congress and replace them with representatives who understand that harmful inflation is the ONLY reason not to build infrastructure and increase private sector savings. Would you?

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The above essay is based upon works by: (books cost about $10)
Frank N Newman, former Deputy Secretary of the US Treasury, author of: ‘’Freedom from National Debt’ (Two Harbors Press);
Francis X Cavanaugh, US Treasury economist for over 30 years, author of: ’’The Truth about the National Debt: Five Myths and One Reality’’ (Harvard Business School Press);
Warren Mosler, economist, author of: ‘’Seven Deadly Frauds of Economic Policy’’ (Oxford University Press);
Dr. Stephanie Kelton, Chair of the UMKC Economics Department, at NewEconomicPerspectives.org.
© 2014 Marvin Sussman All Rights Reserved. Permission granted only to copy entirely.
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skott Loc: Bama

Funny!

skott Loc: Bama

Holy crap! you actually wrote a meaningful and insightful post on OPP. Then you listed sources. You obviously do not understand the purpose of OPP. It's to not have a rational discussion because I may not agree with you.

MarvinSussman

I am aware of the purpose. My essay was a triumph of hope over facts-on-the-ground.

skott Loc: Bama

The earlier posts show that the writers have no clue about the debt. They also have no clue that the congress is required by law to pay our country"s debt.

PoppaGringo Loc: Muslim City, Mexifornia, B.R.

Not so funny. The proggies don't want to man the pumps.

skott Loc: Bama

The way he stated it was funny to me. We have already lived through the "debt" debate before. Under Clinton and Gingrich, I heard control the debt or we die as a nation. The two worked together to get it under control. A balanced budget we had.
Bush came in and added a tax break the deficit, followed by two wars, which continued under Obama.
We could get there again, but I don't think it really is a death sentence, or we would not have given it away so easily.

Winter Solstice Loc: Salt Lake City

Congress, however, is not required to ever-increase the National Debt to pay off the Nation's debt. Borrowing money and increasing the National debt is totally foolish and Congress's duty is NOT to be foolish about out National Debt.

MarvinSussman

Q1: For taxpayers, is our “national debt” really a burden that must be repaid?
A1: No. For taxpayers, it is not a real debt. It’s a “Debt In Name Only”. It’s a “DINO”

THE DINO IS NOT NOW AND NEVER WILL BE A BURDEN FOR TAXPAYERS. When an Asian exporter buys a US bond, her dollars are deposited into her individual Treasury bond account at the Fed. At the bond’s maturity, her principal is returned to her by the Treasury, not by Congress, not by the taxpayer. It is rather the buyers of newly-issued bonds who, in a virtual rollover, pay for redemption of mature bonds.

New bond issues also recapture the debt interest payments so that they do not add to the money supply. As no physical resources are consumed, there is no inflation. For those reasons, CBO budget economists prefer to deal with the “primary” budget, which excludes debt interest expense.

THE DINO WILL NEVER BE REPAID AND SHOULD NEVER BE REPAID. Only a budget surplus can reduce the DINO. Since Truman, every President has left office with an increased DINO and no annual budget surplus is now in sight. To supply enough risk-free US bonds used for trade collateral, insurance, pensions, bank reserves, etc., the DINO MUST GROW with the economy! Our world needs the DINO!

Q2: Could ‘’bond vigilantes’’ go out on a strike against US treasuries?
A2: Yes, when they can get risk-free returns from the Wall Street casino or from GM bonds, Illinois bonds, or Detroit bonds. Safety is not everything. Safety is the ONLY thing! That’s why the whole world relies on US bonds.

In every auction, more bonds are demanded than are available. Auction winners get the safest, most liquid US dollar instruments; the losers are stuck with bank risk. If it were ever necessary, the Fed could increase the demand for bonds and reduce the DINO by buying treasuries in the open market with cost-free keystrokes, collecting the proceeds, and returning the required 94% of its profit to the Treasury.

Q3. Could savers prefer another nation’s bonds?
A3. Yes, indeed! SAVERS WILL ALWAYS WANT THE SAFEST BONDS. And if another nation’s infrastructure and productivity become better than ours, its bonds could become safer than ours and we could then lose our bond-buyers. But that could happen only if US voters let their DINO concerns stop the renewal of falling bridges, failing schools, creaking railroads, etc. Money can be printed, but infrastructure has to be built with real resources over time, which has no substitute. We have 60,000 bridges in critical need of repair. There are over 50,000 dams that have to be removed or fixed. The entire power grid has to be renewed and put safely underground. Our entire school system must be redesigned and rebuilt. We are slipping into third world status. Worry about that!

The US bond will be only as good as the US dollar and the US dollar will be worth whatever it can buy in the USA. To beat the competition, we need the world’s highest productivity based upon the world best infrastructure. If exporters want to sell us their goods, they will have to accept our dollars. If they stop selling us goods, unemployed American will get a full-time job and start looking for cars and homes. But exporters will never stop selling us goods and trading their US dollars for the safest bond available. Wise spending will keep the US bond on top.

Q4: Are not deficits and debt bad for the economy?
A4: Every federal dollar spent and not retrieved by the IRS is saved by the private sector. Yes, Deficits = Savings! The Treasury has a “National debt” and the private sector has a “National asset”. The bad “Debt Clock” is also the good “Asset Clock”. Since, with our trade deficit, we export money, deficit spending is our economy’s SOLE source of savings! In fact, if large budget deficits don’t replace our vanishing cash, deflation will freeze our economy solid. Who would spend a dollar today if it would buy more tomorrow?

Our economy is suffering from acute anemia. Our (DINO + total bank deposits) / GDP ratio is less than half of China’s figure. Our M2 (money supply) / GDP ratio is half of Switzerland’s ratio and one fourth of Hong Kong’s ratio. To become and stay prosperous, we need to DOUBLE the DINO / GDP ratio to return it to the World War II level that was followed by 35 years of prosperity without harmful inflation.

Wealth inequality worsens the anemia. Most of our paltry money supply circulates among the rich who bribe Congress for estate laws to endow wealth used to bribe Congress for laws that enrich the rich. Wealth is power and inherited wealth is inherited power: aristocracy, always the enemy of meritocracy!

Q5: Won’t we need higher income tax rates to pay for infrastructure?
A5: Congress NEVER asks the Treasury if it has enough money. The only rational reason to increase taxes or to reduce deficit spending is the onset of harmful inflation. Until then, Congress can hire the resources left idle by industry to repair, rebuild, and renew our much-needed infrastructure. Every day, you fill your sink with water AND also prevent it from overflowing. Why can’t Congress fill our economy with money by building infrastructure AND also prevent harmful inflation? China manages to build 24/7 without harmful inflation. Why can’t we do that?

While a bank holding too many bad loans can certainly hold too many maturing CDs, our non-lending Treasury cannot hold too many maturing bonds unless its deficit spending causes harmful inflation. And that happens ONLY in a war or emergency requiring rationing. It NEVER happens during a recession. During prosperity, banks are ALWAYS the main cause of inflation, creating over $6 of credit for every $1 of deficit spending. To curb inflation, regulate the banks before stopping work on infrastructure projects!

Q6: How much should Congress spend and tax?
A6: Ideally, Congress should spend almost enough to cause harmful inflation and should tax only enough to prevent harmful inflation. Congress’ fiscal goal should be the onset of harmful inflation.

Instead, bribed by Wall Street, Congress spends as little as possible, impoverishing most of us by restricting deficits / savings and taxes as little as possible, enriching the rich. Just as quacks killed George Washington by bleeding his “bad blood”, Bribed by Wall Street, Congress is destroying our younger generations by reducing (possibly to zero!) our annual budget deficits / private sector savings increase / consumer demand. Wall Street’s austerity budgets create and nurse a huge army of unemployed labor to suppress the wages and working conditions of the shrinking middle class.

Q7: How should one vote?
A7: Vote only for someone who NEVER EVER worries about the DINO and who ALWAYS worries about idle people drawing benefits instead of building much-needed infrastructure for their grandchildren.

Q8: “I have to balance my budget. Why doesn’t Congress balance its budget?”
A8: If you could legally print money in your attic, why would you balance your budget? You would only need to balance your desires against your family’s well-being. Congress only needs to balance full employment against harmful inflation. Why is something so simple so hard to see?

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The above essay is based upon works by: (books cost about $10)
Frank N Newman, former Deputy Secretary of the US Treasury, author of: ‘’Freedom from National Debt’ (Two Harbors Press);
Francis X Cavanaugh, US Treasury economist for over 30 years, author of: ’’The Truth about the National Debt: Five Myths and One Reality’’ (Harvard Business School Press);
Warren Mosler, economist, author of: ‘’Seven Deadly Frauds of Economic Policy’’ (Oxford University Press);
Dr. Stephanie Kelton, Chair of the UMKC Economics Department, at NewEconomicPerspectives.org.
© 2014 Marvin Sussman All Rights Reserved. Permission granted only to copy entirely.

skott Loc: Bama

I had to leave yesterday and did not get a chance to respond.
They are required to pay the bills that they and previous congresses have incurred.

Winter Solstice Loc: Salt Lake City

You (the essay) sound like someone who says it is OK for our Government to go on endlessly borrowing from the FED without fear of ever having to pay any of it back. I fail to see how that has anything to do with "real economics". Rather it sounds like Utopia and, I don't believe that it is achievable.
In the meantime, the greedy Bankers in the FED keep right on expanding their wealth. That money has to come from somewhere and don't tell me it comes from purchasing Government (FED) bonds. I find that to be unbelievable.