tag:blogger.com,1999:blog-2098432983500045934.post2303569333381573167..comments2024-03-12T22:19:32.339-04:00Comments on The New Arthurian Economics: It also explains why the fiscal multiplier is low.The Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.comBlogger10125tag:blogger.com,1999:blog-2098432983500045934.post-15820268194704576322015-01-05T18:46:19.835-05:002015-01-05T18:46:19.835-05:00And without all that painful accounting!
And without all that painful accounting!<br />The Arthurianhttps://www.blogger.com/profile/16501331051089400601noreply@blogger.comtag:blogger.com,1999:blog-2098432983500045934.post-23997693461346035512015-01-05T10:05:18.242-05:002015-01-05T10:05:18.242-05:00I think you did a lot of work to show that what go...<i>I think you did a lot of work to show that what goes into one pocket comes out of another.</i><br /><br />Ha! Come to think of it, that kind of captures the idea of stock-flow consistency :)<br /><br />geerussellhttps://www.blogger.com/profile/10631984593634015839noreply@blogger.comtag:blogger.com,1999:blog-2098432983500045934.post-30030073363920451882015-01-04T20:24:50.912-05:002015-01-04T20:24:50.912-05:00Geerussell,
I looked at the relation of the three ...Geerussell,<br />I <a href="http://research.stlouisfed.org/fred2/graph/?g=W5Y" rel="nofollow">looked at the relation</a> of the three data series for the "flows" side of your third link.<br /><br />I think you did a lot of work to show that what goes into one pocket comes out of another.<br />The Arthurianhttps://www.blogger.com/profile/16501331051089400601noreply@blogger.comtag:blogger.com,1999:blog-2098432983500045934.post-38105854084910128522015-01-04T17:52:25.739-05:002015-01-04T17:52:25.739-05:00"It doesnt make any sense, because the two th..."<b>It doesnt make any sense, because the two things are equivalent.</b>"<br /><br />Auburn, it may well be that the <i>quantity</i> of money and the <i>quantity</i> of credit are equal, on your definitions. But it is beyond me how you can say that a dollar <i>free and clear</i> is "equivalent" to a dollar I have to <i>repay with interest</i>.<br /><br />The other day you were comparing M2 and T-bills, saying if the savings in M2 is money then the savings in a T bill must also be money. Okay...<br /><br />That's where the money is, that isn't in the economy being used for transactions. It is in savings ((or in China)). That's why the money being used for transactions is so much less than the quantity of existing debt. That's how I see it.<br /><br />I have to say it my way, because I use the FRED numbers on spending-money and accumulated debt. But we think much alike.<br />The Arthurianhttps://www.blogger.com/profile/16501331051089400601noreply@blogger.comtag:blogger.com,1999:blog-2098432983500045934.post-67157691907391804312015-01-04T17:08:15.185-05:002015-01-04T17:08:15.185-05:00Art-
if I didnt take out a loan, where would the ...Art-<br /><br />if I didnt take out a loan, where would the money have come from that I used to buy your house?<br /><br />Income? Then where would the payer of my income have gotten their money from to pay me?<br /><br />And so on until we regress back to the original source of the money aka credit expansion (ignoring the other 2 sources).<br /><br />So in effect, credit = money in our example, so its not helpful to say that there isnt enough money when you are rightfully worrying about there being too much credit.<br /><br />Because an equivalent statement would be there isnt enough credit but there is too much money (again, ignoring the Govt and foreign sources).<br /><br />It doesnt make any sense, because the two things are equivalent.Anonymoushttps://www.blogger.com/profile/15433129947896088098noreply@blogger.comtag:blogger.com,1999:blog-2098432983500045934.post-33276603260128088112015-01-04T16:23:27.530-05:002015-01-04T16:23:27.530-05:00Art said...
If the high level of private debt rel...Art said...<br /><br /><i>If the high level of private debt relative to Federal debt is a problem, I want to understand why the ratio is so high. I ask: Why is private debt so high? and Why is Federal debt so low?<br /><br />Funny, isn't it? Federal debt is NOT low. It is only low relative to private debt, because private debt is so massively big. </i><br /><br />To gain insight into the stocks of debt, let's look at the flows that feed them. Here again, a wonderful excuse to blow the dust off of old favorite charts. First, <a href="http://i.imgur.com/2OpPBuI.png" rel="nofollow">sectoral balances</a>.<br /><br />Each line is a flow of net spending. The red line is government. The black line is all non-government. What I want to highlight here wrt private debt is the green line, where the flow of domestic private net spending is broken out. Look at what is happening to the green line when the red line moves towards surplus.<br /><br />As the government moves into surplus the domestic private sector moves into deficit! This is where government participation is determinant because if the government is in surplus, the math says something has to give. If the foreign sector isn't going to accommodate the surplus then it comes out of the hide of the private sector. Which brings me to the next chart, <a href="http://i.imgur.com/waMnT5v.png" rel="nofollow">flow of domestic private spending overlaid with leverage</a>. Here the timing is highlighted. The green line goes negative, leverage shoots up. Twice.<br /><br />Flows of spending feed stocks of debt. Lastly, a big ol' mess of an overly-ambitious chart (if it looks familiar, that's because it's not the first time I've trotted out any of these) trying to <a href="http://i.imgur.com/FBjpHDo.png" rel="nofollow">tie together the stocks and flows to tell a story</a>.geerussellhttps://www.blogger.com/profile/10631984593634015839noreply@blogger.comtag:blogger.com,1999:blog-2098432983500045934.post-70540913436184894142015-01-04T12:59:19.633-05:002015-01-04T12:59:19.633-05:00"In your framework, its "credit" to..."<b>In your framework, its "credit" to me because I must pay back my loan, but those bank deposits are "money" to you since you now have them and dont have anything to pay back.</b>"<br /><br />Yes, that is exactly right.<br /><br />Thank you!<br />The Arthurianhttps://www.blogger.com/profile/16501331051089400601noreply@blogger.comtag:blogger.com,1999:blog-2098432983500045934.post-15966745892073717182015-01-04T11:02:10.708-05:002015-01-04T11:02:10.708-05:00"Sure, because we rely on credit for everythi..."Sure, because we rely on credit for everything. Policy should instead assure that there is enough money in the economy to sustain the existing level of economic activity"<br /><br />"money" in the domestic economy can only come from 3 sources:<br /><br />Govt deficits<br />Bank loans<br />trade surpluses<br /><br />I feel like you continue to overlook this fundamental part of the monetary system in your analysis.<br /><br />Paying off bank loans reduces the amount of money in the economy, which is why doing so is associated with recessions.<br /><br />So if we want to reduce private debt (and I completely agree that we should prioritize this policy), the only way to hold the supply of money constant is some combination of the other 2 sources of domestic money increases.<br /><br />"The difference between money and credit is that money does not have to be paid back and doesn't demand interest payments."<br /><br />Thats not a useful way to describe the situation. If I take out a $300K mortgage to buy your house, the bank creates the bank deposits for me that I then trade to you. In your framework, its "credit" to me because I must pay back my loan, but those bank deposits are "money" to you since you now have them and dont have anything to pay back.<br /><br />The only source of financial asset the private sector can hold that was not created with an offsetting private sector liability is the Govt's deficit.<br /><br />"... there is no way to reduce private debt without encouraging a recession."<br /><br />The assumption that there is no way is the biggest part of the problem"<br /><br />History is clear on this matter. Reducing private debt causes recessions in a vacuum. but we can and should compensate for this by adding money from 1 of the other 2 sources. That this doesnt happen is 100% a result of misunderstanding the nature of Govt finances. <br /><br />It seems like to me you are saying we can have non-recessionary private sector reductions without offsetting fiscal policy. If we ignore the trade balance (USA is not going to a net exporter any time soon, thankfully), this is impossible.Anonymoushttps://www.blogger.com/profile/15433129947896088098noreply@blogger.comtag:blogger.com,1999:blog-2098432983500045934.post-71414654043679076862015-01-04T10:03:29.196-05:002015-01-04T10:03:29.196-05:00"Reductions in the growth of private debt hav..."<b>Reductions in the growth of private debt have been associated with every recession for the last 50 years.</b>"<br /><br />Sure, because we rely on <b>credit</b> for everything. Policy should instead assure that there is enough <b>money</b> in the economy to sustain the existing level of economic activity... And policy should be designed so that we use credit for <i>growth</i>, not for everything. (This means (for example) that policies promoting inequality should be turned around, so that we can maintain our standard of living without resorting to more and more credit-use.)<br /><br />The way things are now, we use credit not only for growth but for everything. So the moment that rising interest rates, or panic, or what-have-you causes people to cut back a tad on their borrowing, we get a recession. What has to change is our underlying assumption that it is okay to use credit for everything.<br /><br />//<br /><br />A definition, for the record: The difference between <b>money</b> and <b>credit</b> is that money does not have to be paid back and doesn't demand interest payments.<br /><br />//<br /><br />"<b>... there is no way to reduce private debt without encouraging a recession.</b>"<br /><br />The assumption that <i>there is no way</i> is the biggest part of the problem.<br />The Arthurianhttps://www.blogger.com/profile/16501331051089400601noreply@blogger.comtag:blogger.com,1999:blog-2098432983500045934.post-8725675628581936772015-01-04T09:20:03.123-05:002015-01-04T09:20:03.123-05:00Really nice work Art-
There is just one problem w...Really nice work Art-<br /><br />There is just one problem with your desire to decrease private debt while not simultaneously increasing the private sector's net income via Govt deficits:<br /><br />https://research.stlouisfed.org/fred2/graph/?graph_id=214254<br /><br />Reductions in the growth of private debt have been associated with every recession for the last 50 years. This is one of the most powerful correlations in macroeconomics. <br /><br />Unfortunately, there is no way to reduce private debt without encouraging a recession. Luckily, recessions are the easiest of all economic problems to fix. You simply increase the private sector's income through increased Govt spending or reduced Govt taxes.<br /><br />One more thing, the decrease in the private debt contribution to GDP multiplier we've seen since the 70's, coincides perfectly with the rise of income inequality. <br /><br />Poor people have all the debt<br />Debt is a financial asset of the wealthy Anonymoushttps://www.blogger.com/profile/15433129947896088098noreply@blogger.com