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Thursday, June 15, 2017

I remember asking this question over 20 years ago and never received an answer that made sense. I checked this site and it was interesting to read and the scenario of the burgers made sense.

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If we flood the economy by printing money, it'll cause inflation because too many dollars are out there.

So, if we borrow trillions of dollars and put it into the economy, it doesn't create inflation?

When we borrow the trillion, are we taking a trillion out of the economy and putting it back in?

Or, are we borrowing a trillion that is not in the economy, but sitting in a piggy bank, and putting it into the economy.

Since borrowing costs more due to interest, would printing it not be cheaper?

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It's pretty simple, really-currency, like diamonds, is valued relative to its scarcity...the more scarce it is, the more 1 unit buys. If there are 1 Trillion units of currency in circulation and you suddenly dump 9 Trillion more on the market, that 1 unit is not worth 1/10th of what it was before you printed the new units. Inflation skyrockets, the currency is devalued and the issuer's economy goes to hell.

#1 | Posted by leftcoastlawyer at 2017-06-15 03:54 PM | Reply

See Weimar republic:
en.wikipedia.org

#2 | Posted by homerj at 2017-06-15 04:25 PM | Reply

Borrowing money creates money plus debt.
en.wikipedia.org

Inflation happens when the borrowed money is spent, but is kept in check by the interest payments demanded for the debt. Inflation goes up, interest rates go up which encourages the pay back of debt that destroys money.

#3 | Posted by bored at 2017-06-15 06:23 PM | Reply

We have been trying to pay it off with cheep money but congress just can't quit spending other peoples money.

#4 | Posted by Sniper at 2017-06-15 07:06 PM | Reply

"We have been trying to pay it off with cheep money but congress just can't quit spending other peoples money."

Dubya and the Republicans were given true surplus budgets as far as the eye could see, and purposely reset the sights to deliver the largest deficits known to man, with nothing but deficits in the future. Along the way, they lit the economy on fire, before handing it off to Obama.

Who do you blame for that change in fiscal sights?

#5 | Posted by Danforth at 2017-06-15 07:26 PM | Reply

"Dubya and the Republicans were given true surplus budgets as far as the eye could see..."

Nope. Not even the least bit true.

2 points,

1) Those "surpluses" the Clinton administration had didn't happen until the GOP took the house. That's the bit of the branch that actually makes the budget.

2) Even then, those douchebags (the Clinton administration and the GOP Congress) DIDN'T reduce the debt. They just spent more money. Essentially there never was a surplus.

#6 | Posted by jamesgelliott at 2017-06-15 08:17 PM | Reply | Newsworthy 1

"Those "surpluses" the Clinton administration had didn't happen until the GOP took the house. "

So what?

"That's the bit of the branch that actually makes the budget."

So what? Do you call it The Reagan Revolution, or The Tip O'Neill Compromise? Presidents get the nod in history.

"Essentially there never was a surplus."

Post again when you learn math. Clinton handed Dubya what we call true surplus budgets, meaning surpluses, even without counting SS overcollections.
,
"Even then, those douchebags (the Clinton administration and the GOP Congress) DIDN'T reduce the debt.'

They left a blueprint which would've allowed it, had Rs not purposely reset the fiscal sights of state. That much isn't debatable. Go look for other ankles to bite.

#7 | Posted by Danforth at 2017-06-15 08:59 PM | Reply

But since you answered, I'll ask you:

Who do you blame for taking true surplus budgets Dubya got, and turning them into the the deficits and the melted-down economy Dubya handed off to Obama?

#8 | Posted by Danforth at 2017-06-15 09:00 PM | Reply

none of those explanations will hold water when wall street is severly restricted and the "flooding" controlled.

#9 | Posted by ichiro at 2017-06-15 11:52 PM | Reply

"Essentially there never was a surplus."

The same lie they have been repeating since 1999.

"Q: During the Clinton administration was the federal budget balanced? Was the federal deficit erased?
A: Yes to both questions, whether you count Social Security or not."

www.factcheck.org

#10 | Posted by danni at 2017-06-16 06:45 AM | Reply | Newsworthy 2

"Who do you blame for taking true surplus budgets Dubya got, and turning them into the the deficits and the melted-down economy Dubya handed off to Obama?"

The truth is markets are cyclical there is usually a recession every 6-8 years. The downturn in the economy started in about September of 2000 just before Bush was elected. It didn't turn into a true recession until 2001. The recession was further crippled by 9-11.

We all know the 2001 recession was mainly caused by the tech bubble popping. Neither Clinton nor Bush had anything to do with that. It was investers getting caught up in irrational emotion. The same thing has happened countless times going back to Netherlands and their tulip bulbs.

#11 | Posted by jamesgelliott at 2017-06-16 08:54 AM | Reply

Presidents inherit things both good and bad.

Clinton had the good fortune of inheriting an economy that was rebounding and the "peace dividend." If you are old enough to remember, there was a lot of talk of the US having a peace dividend due to the fall of the USSR. Several military bases were closed.

Bush had the misfortune of inheriting an economy that was stumbling. It was crippled further by 9/11. It rebounded decently.

Obama also had the misfortune of inheriting a crippled economy. It wasn't handled very well and that's why GDP growth was so low throughout his administration.

#12 | Posted by jamesgelliott at 2017-06-16 09:00 AM | Reply

"The truth is markets are cyclical there is usually a recession every 6-8 years."

Apples and oranges. I discussed long term goal-setting; you countered with a "recession" that didn't last 3 quarters. Do you understand the underlying principle I referenced, or do I have to spend the day on education?

My bottom line question: When will The Party of Responsibility begin taking any responsibility? Look at the economy Dubya was handed, and look at the economy he handed off. Who do you blame for turning surpluses as far as the eye could see into deficits as far as the eye could see?

If your answer is "but, but, but...there was a (6 month) recession", you don't understand the question.

#13 | Posted by Danforth at 2017-06-16 09:01 AM | Reply | Newsworthy 1

"Obama also had the misfortune of inheriting a crippled economy. It wasn't handled very well..." - #12 | Posted by jamesgelliott at 2017-06-16 09:00 AM

Which certainly explains why President Obama was one of only four presidents, in over 100 years of American history, to have been elected and then subsequently reelected with a majority of the votes cast.

Because he didn't handle the economy "very well."

#14 | Posted by Hans at 2017-06-16 09:04 AM | Reply

"If you are old enough to remember, there was a lot of talk of the US having a peace dividend due to the fall of the USSR. Several military bases were closed."

If you think closing a few bases is the difference between permanent surpluses and permanent deficits, you need to brush up on your math skills.

"Bush had the misfortune of inheriting an economy that was stumbling."

Full employment, and surplus budgets as far as the eye could see. That's not the definition of "stumbling".

"Obama also had the misfortune of inheriting a crippled economy. It wasn't handled very well and that's why GDP growth was so low throughout his administration."

You're blaming the runner who caught up, for the runner who dropped the baton and ran the wrong way. Obama got an economy that was losing a half million jobs a month, and handed off an economy with full employment.

If you can't deal with the basic facts, let me know.

#15 | Posted by Danforth at 2017-06-16 09:05 AM | Reply | Newsworthy 2

" It didn't turn into a true recession until 2001."

You're using incorrect nomenclature.

2001 did NOT see a "true recession", certainly not according to the definition of the term recession, which is two consecutive down quarters. Despite some calling it a recession, 2001 did NOT meet the definition: no two consecutive quarters were downturns.

#16 | Posted by Danforth at 2017-06-16 09:08 AM | Reply

Keynesian economic theory calls for dealing with a recession in 2 ways. Substantial tax cuts and increased government spending on things with generational benefits even if it results in deficits. I agree with that theory.

In Obama's handling of the recession that he inherited, he failed on both counts. The tax cuts were too small and the Stimulus bill was more of payoffs to political friends than infrastructure spending. If you remember even Obama admitted that he learned a lot of those "shovel ready jobs" weren't really shovel ready.

I believe, and I'm sure you do to, that if the stimulus was more focused on infrastructure, it would have been more sucessful at healing the US economy.

#17 | Posted by jamesgelliott at 2017-06-16 09:10 AM | Reply

I posted "you countered with a "recession" that didn't last 3 quarters."

Correction: It should've been "didn't last 2 quarters", meaning it didn't fulfill the required time to actually qualify as a recession.

#18 | Posted by Danforth at 2017-06-16 09:14 AM | Reply

"Keynesian economic theory calls for dealing with a recession in 2 ways."

How does it call for dealing with a fake recession?

#19 | Posted by Danforth at 2017-06-16 09:18 AM | Reply

Oh Danny Boy, I understand that on a political web site, most people are going to see things through partisan glasses.

The fact is Bush did inherit an economy that was stumbling. It's hadn't fallen to the point that it was in recession but if you look at the economic indicators at the time, GDP, stock market etc, you can see everything was slowing.

IMO that was one of the biggest reasons Gore lost. A lot of working joes who had retirment accounts through work opened up their 401K or retirement fund statements in October, just before the election and saw a big loss.

"Because he didn't handle the economy "very well." - HANS

Hans, the GDP numbers speak for themselves. GDP growth was anemic. I didn't say his handling of it sucked, but it could have been better. That 2 year tax cut should have been bigger and the stimulus should have been more focused on infrastructure.

#20 | Posted by jamesgelliott at 2017-06-16 12:45 PM | Reply

" I understand that on a political web site, most people are going to see things through partisan glasses."

That's your excuse. I'm following the money and the results.

"The fact is Bush did inherit an economy that was stumbling."

If full employment and surplus budgets as far as the eye can see is "stumbling", what's your description of the economy Dubya handed off?

"GDP growth was anemic (under Obama)"

Remember all the economic promises Romney made? Obama met, and bettered each one...and Rs STILL dog his results. I mean, excuse the f**k out of me, but if you denigrate Obama for the same results you'd be praising Romney, you're part of the problem.

#21 | Posted by Danforth at 2017-06-16 12:57 PM | Reply

Danny, I've already said Obama inherited a bad economy. And the GDP growth numbers speak for themselves. There was no quarter where growth made it to 3% during the Obama administration. I didn't say Obama did a bad job, I just said it could have been better.

Long term, I think it's a good thing that there was not a huge spike in economic growth during Obama's 8 years. I think the next recession will likely go past 6-8 year norm or it will be less severe than normal.

#22 | Posted by jamesgelliott at 2017-06-16 01:15 PM | Reply

I've used this analogy before.

The economy is like a sprinter running a marathon. A sprinter might take of fast and get ahead of the pack but he tires out and stops or slows down. The pack then get ahead of him. After catching his breath he takes off running again.

In the 8 years of Obama, that sprinter didn't take off running at full speed but he did make it back to front of the pack. So he can last a little longer before getting tired.

#23 | Posted by jamesgelliott at 2017-06-16 01:19 PM | Reply

And the GDP growth numbers speak for themselves. There was no quarter where growth made it to 3% during the Obama administration. I didn't say Obama did a bad job, I just said it could have been better.

Well, I guess Obama did better you thought. Either you are purposely lying...Or it could be that you have no idea what you are talking about.

US final Q2 gross domestic product 3.9% vs 3.7% expected
Friday, 25 Sep 2015 | 8:35 AM ET

www.cnbc.com

#24 | Posted by donnerboy at 2017-06-16 07:35 PM | Reply

"The tax cuts were too small and the Stimulus bill was more of payoffs to political friends than infrastructure spending."

The stupidity here is mind boggling.

"The economy is like a sprinter running a marathon."

Hilarious. You never cease to amaze me with your stuipity. Teh economy is a "sprinter." OMG! That's funny. The economy is more like a marathon runner who is disrupted by lunatics like you periodicall but who then just goes back to marathoning. Sprinters are the enemy of good ecomonies. Marathoners are the builders of real economies. I really don't know or care where you get your stupid ideas but you need to find a new source for stupid talking points because the ones you are offering are just laughable. You embarrass yourself with them. You really are a joke.

#25 | Posted by danni at 2017-06-17 08:12 AM | Reply

Actually Danni I wouldn't be so quick to insult James because within some of his points that do make sense as far as the economic landscape.

That isn't a rebuke though, I think conventional wisdom relates to what he is talking about, however, your take on sprinters ruining a marathon might be the most insightful economic observation I've ever heard. I won't be forgetting that soon and I think that might be a teachable point.

Thanks Danni, I literally mean you may have contributed to the scholarly body of economics with your post #25

#26 | Posted by bocaink at 2017-06-17 03:21 PM | Reply

The debt is always paid off by printing money. That's the way the system iss set up.

Let's say i borrow $100 when it is worth 100 cabbages and there is only 100 dollars in circulation and 100 cabbages.

If I print 100 more but still only have 100 cabbages, then 200 dollars is worth 100 cabbages, of 50 cents per dollar compared to what it was when i borrowed it.

Of course wages rise too. This is called inflation. But the original debt can be paid off by 50 cabbages, not the 100 it was worth when i borrowed it.

Apparently this is too complicated for people to grasp, but it's the way it works.

But, here's the fun part. This is where interest comes in. The interest is the fee payment to the bank for loaning the money. If you buy a house for 100k with a 30 yr mortgage, you will end up paying back 300k. This is why no one WANTS to balance the national debt. If they did that, our entire financial system would collapse. There would be no reason for banks to exist and they would have to take over the old fashioned way, with a military coup.

Did you happen to notice that for the past 9 years, when inflation was held artificially low, to keep the economy from deflating, the credit market has been tight? There was no profit in lending, so banks didn't do it, except to sure bets.

If you don't believe me, i'll put my money where my mouth is. The fed has raised the prime rate twice since nov 2016 and will do it again in a few months (my opinion). That is injecting inflation slowly into the system, which devalues the debt. The credit market will loosen up and banks will start lending again.

Another side effect of all this is even more economic/social stratification. The rich get richer, the poor get poorer, but at least they can find a min wage job, because upswings encourage entrepreneurship, for the rich and the credit worthy.

#27 | Posted by kudzu at 2017-06-17 09:08 PM | Reply

Upon skim of the thread, there has been some quality points made. In this case, I wish there was a "Good point" flag, rather than only a "Newsworthy" flag...

Borrow money to create value via goods & services. The slower depreciation to $0 residual value, the better.
It is mostly as simple as that.

#28 | Posted by GOnoles92 at 2017-06-17 09:41 PM | Reply

It's pretty simple, really-currency, like diamonds, is valued relative to its scarcity...the more scarce it is, the more 1 unit buys. If there are 1 Trillion units of currency in circulation and you suddenly dump 9 Trillion more on the market, that 1 unit is not worth 1/10th of what it was before you printed the new units. Inflation skyrockets, the currency is devalued and the issuer's economy goes to hell.

#1 | Posted by leftcoastlawyer at 2017-06-15 03:54 PM | Reply | Flag

Not necessarily true, ideally that is how most people thinks it works but not really.

The one thing most people don't understand is the DOLLAR is what we say it is, fiat, and as long as people agree to the value set we can set it to what we want. It gets trickier when crossing borders. Countries have to believe our dollar is of the value we say it is too and there is guarantees that must be set to keep the countries believing the value.

#29 | Posted by Crassus at 2017-06-18 09:53 AM | Reply

Interest rate is supposed to be directly related to inflation but we have moved from such through "magic" artificial means which have really created our "bubbles" we currently create.

#30 | Posted by Crassus at 2017-06-18 09:55 AM | Reply

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