Recent comments

Two quality recent comments:

Max says:

“If you make a list of the countries in the world that have the biggest homework in restoring their public finances to a reasonable situation in terms of debt levels, you find four countries: Greece, Ireland, Japan and the United States,” Vinals said.

Vinals = Jose Vinals, director of the IMF’s monetary and capital markets department.

IMF cuts U.S. growth forecast, warns of crisis

The IMF is a menace.

TC Says:

People believe the Government Budget Constraint must hold. They are wrong.

The intertemporal government budget constraint (ITBC) is “the government must balance its budget at some point in the future, and pay off all the debt it has accumulated.”

There is a reason I went after this exact part of economics. If you do believe in the fantasy of the Government Budget constraint, you’ll think the United States is doomed.

This single idea is absolutely toxic. The entire edifice of conventional government budget math is based on it. The words “Bond Vigilante” can only make sense because people believe this wrong idea.

This is why I went after it.

The Concise Way to Destroy the IGBC, and Why to Destroy it

As long as the ITBC has any followers, we are literally worse off than if we didn’t know anything. As long as the ITBC has followers at the IMF, we are going to be fighting with people who cannot and do not know the most basic facts about our economy.

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22 Responses to Recent comments

  1. nfljerseys says:

    I sincerely state you deliver several amazing points and I will submit many suggestions to create in shortly.


  2. hamish says:

    I’m not convinced that surplusses necessarily cause recessions per se, rather they can just be a symptom of a private sector boom, normally debt driven, and that booms are typically followed by busts. The surplus may just be the effect of the automatic stablisers on the upside, rather than the efforts of the economic flat earthists trying to run ‘balanced budgets’.



    right, and add to that the private booms are unsustainable due to the surplus they created removing net financial assets which is the financial equity that supports the credit structure


    Tom Reply:


    So then, if a surplus is reached during a strong economy, is the best course of action to then do something to force a slight deficit?

    Or does it depend on the actual scenario to determine whats best.



    depends on the scenario

    but at first sign of trouble be ready with a tax cut and/or spending increase

  3. Tom says:

    I had a question Warren,

    I was reading some by Wray, and he made the point that nearly all of our depressions have been proceeded by a reduction in debt or surpluses by the govt. And usually the depression seems to occur right after the reduction in debt.

    I was wondering what explanations there might be as to why it took nearly a decade for the Clinton surplus and debt reduction to cause the current recession/depression?


    Neil Wilson Reply:


    It caused the 2001 recession and started the household debt binge that ended in the Great Recession.

    The 2001 recession was fixed by the Bush Tax Cuts – which were large enough to add to aggregate demand


    leja Reply:

    @Neil Wilson,

    And war. Bush is quoted as saying something like “best way to fix the economy is to start a war”. One hell of a reason to start a war.



    it all hit the fan right after unsustainable y2k/.com borrowing to spend crashed and the 1% rates didn’t help until Bush did the reasonably large 2003 fiscal adjustment (soon after my meeting with Andy Card). and even that didn’t do a whole lot until the (unsustainable) sub prime expansion phase kicked in, which brought us back to where we are today when it crashed.


  4. macrosam says:

    How does one put Greece, Ireland, the US, and Japan in the same sentence and not be able to make the distinction between the first two and the last two? It’s as straightforward as stating aloud which currencies are associated with each country.


    TC Reply:

    @macrosam, I don’t get it either. It doesn’t make any sense.


    Dan Furlano Reply:


    How? Listen to this;


    macrosam Reply:

    @Dan Furlano,

    Sigh, true. All they’d have to do is say: “Euro, Euro, US Dollar, Japanese Yen.”


  5. Crake says:

    The first paper stated, “in November 2003, Democratic Senator Joseph Lieberman introduced the “Honest Government Accounting Act”

    I thought Lieberman was supposed to be one of two or three senators who understood MMT. Was this before his understanding of MMT or does he just not care even though he understands it?


  6. Art says:

    “As long as the ITBC has any followers, we are literally worse off than if we didn’t know anything. As long as the ITBC has followers at the IMF, we are going to be fighting with people who cannot and do not know the most basic facts about our economy.”

    Amen! Scott F has some great stuff on IGBC:

    Any economist who understands (1) how (and just as importantly, when and why) the classical gold standard worked and (2) that the dM role played by mines and mints is now exclusively a public monopoly via the federal govt’s budget deficit SHOULD be able to grasp that IGBC ought to be DOA.

    Emphasis on “should.” More likely to win this war from the bottom-up, I think.


    Tom Hickey Reply:


    Art, as debate on the blogs shows, it is difficult to convince people holding such strong confirmation bias that evidence doesn’t sway them. They serve as proof of the irrationality of “rationality.” (Paul Krugman, I am thinking of you.)


    art Reply:

    @Tom Hickey,

    Or is it rationality of irrationality? :)


    TC Reply:

    @Tom Hickey,

    These two papers by Scott are classics and will one day be widely regarded as such. I’ve read them both many times.

    Reading through the conventional derivation of the IGBC in the first paper about 20 times was how I found the no-Ponzi weakness. I noticed that if you kicked through the rotted wood of the no-Ponzi(page 7-8), the entire IGBC collapses.

    In his paper, he goes after the IGBC by demonstrating it is factually untrue. He assembles an overwhelming case of how government spending actually works. I personally wish he had put up a bullet pointed guide to what he was going to do in either the beginning or on page 13, but in the world of economics papers, high degrees of clarity are considered gauche.

    I took a slightly different tact in going after the IGBC because we need to be like spider monkeys attacking on this idea. It is false, and false things usually can be destroyed in more than one way.

    Note that in “What if the Government” paper, he states the entire profession is using the wrong demand model for cash and treasury securities. That’s bold.


    Art Reply:

    File under stuff you couldn’t make up: Bush’s first Treas Sec and deficit terrorist extraordinaire Paul O’Neill, who commissioned the Gokhale-Smetters study that Scott F so ably demolished, says those who oppose raising the debt ceiling are terrorists. The irony…

    And file under depressing: US News chooses deficit terrorist Bill Gale, whose work was also ably exposed by Scott, to argue the “Yes” side on raising the debt ceiling — because we have to keep our credit card lenders at ease, don’t ya know. Good grief.


  7. Calgacus says:

    four countries: Greece, Ireland, Japan and the United States

    That’s like comparing the finances of major industrialists and bankers to that of 2 poor saps who listened to con men. Who convinced them that the smart way to get rich was to take on a subprime mortgage for a prison cell to live in.


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