Comments on: November consumer borrowing plunged $17.5 billion

By: zanon

zanon — Fri, 15 Jan 2010 19:19:12 +0000

The spending would not have come out of savings/loans. If the private sector has an increased demand for net financial assets (equity), then only deficit spending by the Govt can supply it. The private sector is incapable of supplying NFA. Since supply is zero, transactions fall as the private sector tries (but fails) to supply something it cannot. This manifests as falling AD (or falling velocity if you want to think in quantity of money model). Falling AD leads to higher unemployment and lower capacity utilization, which is bad for the real economy.

The sector level balance sheet effects of private sector spending (whether from savings or from loans) are different than those from Govt spending, and will therefore have different impacts.

Mosler’s point is that the deficit right now seems to be large enough to fund the private sector’s demand for NFA, so private sector can fund demand out of income and not through increasing its leverage (which is good, as it was overleveraged initially). You want the private sector to hold a debt load it can service out of income.

If you don’t understand this, you will need to read the required readings. They are required for a reason.

By: Curious

Curious — Fri, 15 Jan 2010 18:46:25 +0000

Yes, but that’s not the case here, because deficit spending only replaces spending otherwise done out of savings/loans. So aggregate demand is unchanged.

And that was my question: Why is that desirable?

By: zanon

zanon — Fri, 15 Jan 2010 05:34:08 +0000

???

Yes, deficit spending is supporting aggregate demand. It’s doing it in a particular way that the private sector cannot do alone because it funds private sector demand for net financial assets equity.

By: Curious

Curious — Fri, 15 Jan 2010 04:56:45 +0000

1. OK.

2. Zanon said: “in this instance, deficit spending is supporting aggregate demand…”

and also “Change in AD is the same…”

So is it supporting AD or not?

You REALLY should read the post that you responding to

By: zanon

zanon — Thu, 14 Jan 2010 20:39:10 +0000

1. The FFR is actively managed. So ceteris paribus, $1T into t-bills would have no impact on interest rates.

2. By deficit spending, I assume you mean Federal Deficit spending. Change in AD is the same, but Federal deficit spending increases private sector net financial assets, while private sector activity does not, and cannot.

You REALLY should read the Required Readings

By: Curious

Curious — Thu, 14 Jan 2010 18:10:30 +0000

1. My comment was about the effect of rolling $1T into Tbills, ceteris paribus. I thought it was obvious.

2. Whether I buy a car with my savings/debt or with money from deficit spending, I still buy just 1 car. No change in aggregate demand.

By: Jill K

Jill K — Thu, 14 Jan 2010 08:46:55 +0000

Which reminds me of something else you said in 2008- that a payroll tax holiday would begin to restore aggregate demand in about 90 days.

Hello, America? (*** MAY I HAVE YOUR ATTENTION PLEASE ***) Outside of war, something is very wrong when the person/people we hire to do a job are unable to describe what successful execution will look like and unwilling to commit to a time frame for completion.

By: zanon

zanon — Thu, 14 Jan 2010 07:46:46 +0000

interest rates would be wherever the Fed wants to set them.

in this instance, deficit spending is supporting aggregate demand, and thus reducing unemployment and debt deflation.

You should read the Required Readings

By: Jill K

Jill K — Thu, 14 Jan 2010 07:12:03 +0000

“I could teach any third grader to do it in 15 minutes.”

Nothing to say really. It made me laugh.

By: Richard Benson

Richard Benson — Sun, 10 Jan 2010 11:52:33 +0000

“Government to fund directly”

Agreed Tom, we need to expand social security to be the only retirement our populace needs, broadening its original mandate of just being supplemental retirement. These R Bonds could work to Warrens goal of reducing the financial sector by 90% no?

http://jessescrossroadscafe.blogspot.com/2010/01/us-government-is-eyeing-your-401ks-and.html