I understand that most economists would say that the velocity of money is not stable,but that is beside the point.
Sorry, I was looking for data from previous US recessions showing that the labor market back throughout US history has indeed lagged behind other indicators in recovery. I should have made that clear.
The money has to be paid back someday and we don’t have it.
[Y]
Unfortunately, all names which might be used to designate this kind of monetary effectiveness have already been appropriated for designating different concepts of the velocity of money. Until somebody finds a fitting term, therefore, we shall have to speak somewhat clumsily of the proportion between the amount of goods exchanged against money and the total flow of goods or of the proportion of the total movements of goods which is effected by exchange against money - Hayek, Prices and Production, pp. 261
No, the refutation is that the velocity of money has anything to do with the price level or creation of wealth.
So do you believe we are actually better off all things considered by this news?
IT is my understanding that running a budget deficit does not put us at risk of experiencing a sovereign default within the context of external debt. This is because the united states,Britain, and some other countries have never defaulted due to external debt obligations. This is because ours/other countries have always honored their debt obligations while at the same time other countries continue to buy our T-Bills.
There are three good reasons as to why countries like the United States have, and may never suffer a sovereign default.
- Countries like China/Japan continue to buy our T-Bills
- Sovereign default is more of a problem for emerging markets.(Argentina defaults on average every 20 years)
- we continue to honor our debt obligations.
Thus a budget deficit is only a minor concern and especially so because even when a default occurs it is only partial(in modern times), but the most important reason is that it is very unlikely to happen to a first world country for the reasons I gave.
In some ways, yes, in other ways no.
They’re buying our debt for now. I doubt they always will. This is ponzi economics, therefore it’s inherently unstable. I don’t know how long this can be sustained, but I know it can’t be sustained forever.
Besides, the US has massive fiscal liabilities that it cannot sustain (social security, medicare, medicaid) and they’re coming due soon. If we don’t default on our debt, we’ll have to monetize it. That causes inflation. One way or another, there will be a price for what’s been done. We just may not have to pay it for a while.
Bloom, you do understand that Austrians acknowledge that Keynesian inflationism can delay the necessary contraction, but that it will magnify its negative affects in the future, right?
well obviously it can not be sustained forever but we are not at risk at incurring a default on our loans. This is because we have a good history of paying back our loans( payment schedules). countries will continue to buy our T-bills because of how cheap it is.
Default isn’t the main concern with running up deficits IMO. Although it isn’t even necessary for a country to officially default. It can simply pay back with devalued currency.
I didn’t know that. But that’s basically my position. However, Keynes was clearly right; this tool works. Just not forever.
As I mentioned ages ago in another one of your threads, blazencage, if the US’s international creditors are so chuffed with the way things are going then why don’t we see the dollar gaining ground against other currencies? Why don’t we see gold, silver and other commodities dipping? The market isn’t buying this phony recovery and neither should anyone else. You don’t just detonate trillion-dollar money bombs into the economy without getting blowback somewhere…
In order to do that, it must first stop borrowing.
The current situation is a recipe for hyperinflation.
What happens when the bill comes due? What happens when we can’t kick the can down the street any further? What sort of policies do you think will be enacted when that happens?
well usually it is the main concern according to the media, and both of our political parties…which is stupid.
The only reason why there is a demand for treasury bills and notes is because the FED continuously engages in open market purchases, leading to vast capital gains. If the FED slows down its purchases, demand will fall, and the interest rate will rise. If the FED starts selling bonds, demand will collapse, and interest rates will go through the roof. This also means that the FED can only absorb a mere fraction of the money they’ve created–they have no exist strategy. Once the economy looks like its recovering, then the demand for money will fall, and the 3 trillion dollar expansion of the monetary base will mean a 30-50 trillion dollar increase in the money supply. This also means that foreign nations will dump their bills and bonds as fast as they can in order to protect some of the wealth they’ve squandered by lending to the United States. This is why Bernanke, who knows what he’s done, is paying interest on reserves: he doesn’t want that money in the economy.
Your childish optimism, and your belief in magic, is both refreshing and scary.
If it doesn’t work forever, then Keynes was clearly wrong about his assessment of the economy and business cycle.
These fiscal and monetary stimuli are like drugs. The kind of pleasure they induce is artificial, unhealthy, and unsustainable. We would be better off without them even if it means some short term pain.