A cunning plan: Inflation enables governments to socialize the costs of their programs and to avoid political oversight, all the while immiserating the people least well situated to deal with it.
When a central bank buys government bonds as part of quantitative easing I get the idea that they are trying to push cash into the economy but what does the central bank do with the bonds it has bought? Do they just disappear in a puff of smoke?
Two things: First, when the Fed "buys" bonds, the U.S. Treasury gets the instantly credited money. the government then goes off and does things like send $40 billion off to Ukraine. Second: I'd have to research this more, but the Fed, as a bond holder earns interest. It also earns interest in more traditional ways. Those earnings get credited with ... the US Treasury! So, the government buys much of its own bonds, pays out interest (to itself) on those bonds, and then credits itself with the interest payments. I guess these opposing flows of interest payments cancel out on someone's spreadsheet ...
A solid start to a future very long essay - perhaps one of a lifetime. The near magical target of 2% inflation seems to relate to the old US economy. The US tax revenues over a very long time are ~ 20% of GDP. Note that figure is regardless of individual tax rates. The EU is able to extract considerably more in general. The US outlays historically have been ~ 22% of GDP. The deficit (22-20) was ~ 2% so easily covered by mild inflation. That slow grind was tolerable to the public.
Over time outlays have increased with GDP but slowly became heavily oriented toward transfer payments to individuals. Congress ensured it's sinecure by giving favors to we citizens. All that predicted long ago - "When the people discover they can vote themselves the treasury, they will and thus end their great experiment". The financial crisis of 2000 followed by 2008 saw considerable paper wealth simply evaporate. Financial engineering become quite lucrative in the ongoing greed campaign. Sadly a reformer, Mr Obama, arrived as the financial system needed to be 'saved' but at the same time the FDR SS time bomb exploded as we always knew it would.
The deficits of 2008 exploded because none of the remedies to quell the recession improved future growth prospects for real wealth. IMHO financial engineering produces little real wealth particularly if the proceeds are used to fund growth in a corrupt China.
Trump was on a path to try to restore an economy when a disease from China arrived to end his tenure and destroy great chunks of the world economy. Because of the Internet we were able to somewhat tolerate economic cessation unthinkable in the past and the world did so.
Meanwhile, we elected perhaps the most ill suited group of people imaginable to restore the economy. Where this goes is quite unclear as perhaps a near constant future inflation is required to amortize the debt. As service of that debt consumes more of the outlays something must suffer. Whether we will face the reduction of transfer payment is unclear. Worldwide we can expect considerable unrest as previous lifestyles are threatened.
I do hope that the wizards behind the scenes are thinking of solutions. While the WEF pretends a group of billionaires can impose a future, the lessons of the French Revolutions might provide caution.
One thing I have yet to do -- one of many things -- is start to get a grip on the de facto budget constraint we operate under given our fiat currency regime. As a start, I've been meaning to pluck off of my shelf a book by Tom Sargent, a fellow who might have a lot to say about such things.
Something I do know a little about is the expansion of the administrative state starting in the late Progressive Era. Like, does 22% or 24% of the economy really need to be channeled through the Federal Government? The proponents of government-by-administrative-code will say, yes; affairs are so complex; we can't leave it to the "market" to sort out complex problems. A sceptic might then pose the idea that maybe the government should get out of doing so much.
Tom Sargent might be a solid deep dive. I place much of the expansion of the Federal government to FDR's time and the re-interpretation of the commerce clause. In those dark days people looked for hope and expectations of government providing it became salvation. Of course, it wasn't. In recent times, we turn again to government and find it lacking.
We have always been able to allow expansion of transfer payments to 'help' people but it destroys some degree of the self reliance spirit. But every experiment in socialism fails once those that do produce became angry at those who don't. But because this pandemic has caused such a huge economic hit, the nations that once could manage the debt/GDP issue appear to be in real trouble.
I remain confused and unable to see much of where this economy will go. I just hope we start to see some corrections soon.
Yes, we've sitting here now 57 years on from 1965 (Daniel Moynihan's memorandum on the prospective trajectory of the Great Society) and and 51 years on from 1971 (the end of the complicated Bretton-Woods system) wondering when the system would start to fall apart. 1979 looked like a good candidate, but here we are, still wondering...
When a central bank buys government bonds as part of quantitative easing I get the idea that they are trying to push cash into the economy but what does the central bank do with the bonds it has bought? Do they just disappear in a puff of smoke?
Two things: First, when the Fed "buys" bonds, the U.S. Treasury gets the instantly credited money. the government then goes off and does things like send $40 billion off to Ukraine. Second: I'd have to research this more, but the Fed, as a bond holder earns interest. It also earns interest in more traditional ways. Those earnings get credited with ... the US Treasury! So, the government buys much of its own bonds, pays out interest (to itself) on those bonds, and then credits itself with the interest payments. I guess these opposing flows of interest payments cancel out on someone's spreadsheet ...
A solid start to a future very long essay - perhaps one of a lifetime. The near magical target of 2% inflation seems to relate to the old US economy. The US tax revenues over a very long time are ~ 20% of GDP. Note that figure is regardless of individual tax rates. The EU is able to extract considerably more in general. The US outlays historically have been ~ 22% of GDP. The deficit (22-20) was ~ 2% so easily covered by mild inflation. That slow grind was tolerable to the public.
Over time outlays have increased with GDP but slowly became heavily oriented toward transfer payments to individuals. Congress ensured it's sinecure by giving favors to we citizens. All that predicted long ago - "When the people discover they can vote themselves the treasury, they will and thus end their great experiment". The financial crisis of 2000 followed by 2008 saw considerable paper wealth simply evaporate. Financial engineering become quite lucrative in the ongoing greed campaign. Sadly a reformer, Mr Obama, arrived as the financial system needed to be 'saved' but at the same time the FDR SS time bomb exploded as we always knew it would.
The deficits of 2008 exploded because none of the remedies to quell the recession improved future growth prospects for real wealth. IMHO financial engineering produces little real wealth particularly if the proceeds are used to fund growth in a corrupt China.
Trump was on a path to try to restore an economy when a disease from China arrived to end his tenure and destroy great chunks of the world economy. Because of the Internet we were able to somewhat tolerate economic cessation unthinkable in the past and the world did so.
Meanwhile, we elected perhaps the most ill suited group of people imaginable to restore the economy. Where this goes is quite unclear as perhaps a near constant future inflation is required to amortize the debt. As service of that debt consumes more of the outlays something must suffer. Whether we will face the reduction of transfer payment is unclear. Worldwide we can expect considerable unrest as previous lifestyles are threatened.
I do hope that the wizards behind the scenes are thinking of solutions. While the WEF pretends a group of billionaires can impose a future, the lessons of the French Revolutions might provide caution.
One thing I have yet to do -- one of many things -- is start to get a grip on the de facto budget constraint we operate under given our fiat currency regime. As a start, I've been meaning to pluck off of my shelf a book by Tom Sargent, a fellow who might have a lot to say about such things.
Something I do know a little about is the expansion of the administrative state starting in the late Progressive Era. Like, does 22% or 24% of the economy really need to be channeled through the Federal Government? The proponents of government-by-administrative-code will say, yes; affairs are so complex; we can't leave it to the "market" to sort out complex problems. A sceptic might then pose the idea that maybe the government should get out of doing so much.
Tom Sargent might be a solid deep dive. I place much of the expansion of the Federal government to FDR's time and the re-interpretation of the commerce clause. In those dark days people looked for hope and expectations of government providing it became salvation. Of course, it wasn't. In recent times, we turn again to government and find it lacking.
We have always been able to allow expansion of transfer payments to 'help' people but it destroys some degree of the self reliance spirit. But every experiment in socialism fails once those that do produce became angry at those who don't. But because this pandemic has caused such a huge economic hit, the nations that once could manage the debt/GDP issue appear to be in real trouble.
I remain confused and unable to see much of where this economy will go. I just hope we start to see some corrections soon.
Yes, we've sitting here now 57 years on from 1965 (Daniel Moynihan's memorandum on the prospective trajectory of the Great Society) and and 51 years on from 1971 (the end of the complicated Bretton-Woods system) wondering when the system would start to fall apart. 1979 looked like a good candidate, but here we are, still wondering...