They don't need "more farking money", they need to change where they get it. What Gross is saying is that instead of borrowing 40 times more money than their investors put in, they should operate on a much more reasonable level (like "only" 10-12 times for many US financial institutions). This usually involves asking their investors for cash instead of banks or other lending institutions.

Did subby read the article?

Brontes: Did subby read the article?

Subby seems to have proudly attended the Fark Upstairs Finance and Economics College.



"It's accredited!"

Arkanaut: They don't need "more farking money", they need to change where they get it. What Gross is saying is that instead of borrowing 40 times more money than their investors put in, they should operate on a much more reasonable level (like "only" 10-12 times for many US financial institutions). This usually involves asking their investors for cash instead of banks or other lending institutions.

They don't need money. They need a rain of bullets.

AcneVulgaris: They don't need money. They need a rain of bullets.

That's nice and all, but you need to make the rich do something with their money, instead of hoarding it.

Arkanaut: AcneVulgaris: They don't need money. They need a rain of bullets.

That's nice and all, but you need to make the rich do something with their money, instead of hoarding it.

What do you think they do with their money that you would deem 'hoarding'? Do they stuff it in a mattress? If not, what do they do with their money, and where does that money go, and what do the recipients do with that money?

Debeo Summa Credo: Arkanaut: AcneVulgaris: They don't need money. They need a rain of bullets.

That's nice and all, but you need to make the rich do something with their money, instead of hoarding it.

What do you think they do with their money that you would deem 'hoarding'? Do they stuff it in a mattress? If not, what do they do with their money, and where does that money go, and what do the recipients do with that money?

I meant that if the banks weren't around, or were given the "bullet" treatment that AcneVulgaris suggested, the wealthy would probably hoard most of their wealth.

I'm enjoying how both this and the article below it have the same stock image.

Debeo Summa Credo: What do you think they do with their money that you would deem 'hoarding'? Do they stuff it in a mattress? If not, what do they do with their money, and where does that money go, and what do the recipients do with that money?

They're buying Treasuries, actually. The rich are basically offering to lend their money to the federal government at a loss*. . . and, get this, the people are fully against the government accepting that offer.

That really is money under the proverbial mattress; monetary velocity is very, very slow right now. But half the reason why it's stuffed under there is teabagger derp. We could invest in infrastructure but socialism something something. With half the country brainwashed into voting against their interests out of ideology, the rich are now sitting around in a financially paralyzed world they helped create, wondering what to invest in. So they park their money in Treasuries. If Kali tried to facepalm to this she'd run out of hands.

When multiple instances of irony become a swirling cycle of derp, what do we call it? Can we turn Fark into a four-letter word for this?

*There's so much money in Treasuries right now that yeilds aren't keeping pace with inflation.

Arkanaut: Debeo Summa Credo: Arkanaut: AcneVulgaris: They don't need money. They need a rain of bullets.

That's nice and all, but you need to make the rich do something with their money, instead of hoarding it.

What do you think they do with their money that you would deem 'hoarding'? Do they stuff it in a mattress? If not, what do they do with their money, and where does that money go, and what do the recipients do with that money?

I meant that if the banks weren't around, or were given the "bullet" treatment that AcneVulgaris suggested, the wealthy would probably hoard most of their wealth.

Oh, yeah. I guess I could see them converting wealth into gold or other physical assets and holding that. But there would be so many other moving parts to a world without banks its hard to envisage how much wealth would be left.

dragonchild: Debeo Summa Credo: What do you think they do with their money that you would deem 'hoarding'? Do they stuff it in a mattress? If not, what do they do with their money, and where does that money go, and what do the recipients do with that money?

They're buying Treasuries, actually. The rich are basically offering to lend their money to the federal government at a loss*. . . and, get this, the people are fully against the government accepting that offer.

That really is money under the proverbial mattress; monetary velocity is very, very slow right now. But half the reason why it's stuffed under there is teabagger derp. We could invest in infrastructure but socialism something something. With half the country brainwashed into voting against their interests out of ideology, the rich are now sitting around in a financially paralyzed world they helped create, wondering what to invest in. So they park their money in Treasuries. If Kali tried to facepalm to this she'd run out of hands.

When multiple instances of irony become a swirling cycle of derp, what do we call it? Can we turn Fark into a four-letter word for this?

*There's so much money in Treasuries right now that yeilds aren't keeping pace with inflation.

Isn't the government using the proceeds from Treasury sales to finance the deficit. One can say that, by buying treasuries, "the rich" and other investors are financing $1b in additional government spending that wouldn't be feasable if not for the sales of treasury securities. In reality, if the rich used their cash in other ways, reducing total demand for treasuries, the treasury would either have to pay higher interest to attract capital or cut spending.

I guess I agree with you regarding money velocity being slow, but if the rich invested their excess cash in investments or consumption, how would the deficit by financed?

PIMPCO says biatch better have my money.

Debeo Summa Credo: I guess I agree with you regarding money velocity being slow, but if the rich invested their excess cash in investments or consumption, how would the deficit by financed?

The deficit would be reduced because they'd be paying employees or participating in other economic activity which would increase the tax base.

On the other hand, financial advisors, considering their typical high fiber diet, consumption of fine wines and high intake of Kobe beef, make for a splendid open pit barbeque main course.

the_geek: Debeo Summa Credo: I guess I agree with you regarding money velocity being slow, but if the rich invested their excess cash in investments or consumption, how would the deficit by financed?

The deficit would be reduced because they'd be paying employees or participating in other economic activity which would increase the tax base.

Ok, directionally you are probably right, however that sounds suspiciously close to the supply side laffer curve economics the right -wingers sell. I'll agree that increased employment would boost tax revenues relative to less employment, but it certainly wouldn't generate enough incremental tax revenue to offset the lost purchases of treasuries. So maybe you get another $10 in tax revenues but lose $100 in treasury purchases (numbers completely hypothetical). This results in gov't spending, all else equal, being reduced by $90. Clearly we'd be in a better spot if everyone sitting on treasury investments decided to invest it today, but it's not like their just putting it in a mattress.

How about no?

Arkanaut: AcneVulgaris: They don't need money. They need a rain of bullets.

That's nice and all, but you need to make the rich do something with their money, instead of hoarding it.

They could bleed on it.

dragonchild: When multiple instances of irony become a swirling cycle of derp, what do we call it? Can we turn Fark into a four-letter word for this?

Circlederp?

They need a run on the banks. Everyone needs to get the fark out and put your pittance in a credit union. The rot is right down to the main beam. Get out.

AcneVulgaris: Arkanaut: AcneVulgaris: They don't need money. They need a rain of bullets.

That's nice and all, but you need to make the rich do something with their money, instead of hoarding it.

They could bleed on it.

See, that does nobody any good, because then no one can use it. Also, they can afford the security.

Arkanaut: AcneVulgaris: Arkanaut: AcneVulgaris: They don't need money. They need a rain of bullets.

That's nice and all, but you need to make the rich do something with their money, instead of hoarding it.

They could bleed on it.

See, that does nobody any good, because then no one can use it. Also, they can afford the security.

We could all enjoy watching them bleed on it?

Bad_ad85: I'm enjoying how both this and the article below it have the same stock image.

Enough to post it in both threads, apparently.

dragonchild: If Kali tried to facepalm to this she'd run out of hands.

Also, this is an AWESOME image

Debeo Summa Credo: Isn't the government using the proceeds from Treasury sales to finance the deficit.

Nah, the deficit isn't financed at all (new window) -- at least, it doesn't have to be. If anything, the government basically is doing the rich a huge favor by giving them a save haven to park their money. Which is ironically killing us and the validity of trickle-down, but I digress.

The government first spends money into existence (otherwise where the hell else do dollars come from), then the equivalent amount is sold in bond auctions to shut D.C. up because Congress is populated with dinosaurs and lazy idiots who haven't kept up with the evolution of economics*. Even if there isn't demand, the Fed just sets bank rate & reserve targets that allows the Treasury to meet their quota. My understanding of this part of the machine is admittedly imperfect, but basically the banks are given a pile of cash by the Fed with no choice but to buy Treasuries with it. (Which is just fine with them, because banks aren't reserve constrained anymore anyway.) This was accidentally discovered some months back by goldbugs who thought it was some massive conspiracy to "hide" government spending through "fraudulent" bond auctions, but it's really how the Fed and Treasury have kept the government solvent and dollar stable for about four decades now. It never fails because it's explicitly designed not to.

It's also why the Fed is able to hold interest rates down. The teabaggers are terrified of rising interest rates, but the interest rate is controlled by this system. Bond demand among the rich could collapse tomorrow and the Fed will just adjust reserve requirements to drag rates back down. The money never leaves the system so there's minimal impact on inflation -- it's just numbers in a computer. The real danger is inefficient spending, which leads to a loss of confidence in the dollar itself (because less stuff + more money = inflation), and I will concede there's plenty of that. But long story short, the rich aren't doing us any favors.

*Most people don't know either, but I'm harsher with Congress because if you pass laws for a living you ought to know this shiat

dragonchild: My understanding of this part of the machine is admittedly imperfect, but basically the banks are given a pile of cash by the Fed with no choice but to buy Treasuries with it.

I believe there's 2 parts to it:
a) The banks are mostly primary dealers, which means they can buy Treasuries directly from the Fed, but also means they're obligated to participate in Treasury auctions. They can't turn around and say "sorry, we don't need any this week", they must bid. Of course, they can purposely lose by offering a stupidly low bid, but that's rare because:

b) What the hell else are they going to do with the cash in the current market? Banks everywhere need to accrue a large pile of locally denominated treasuries over the next few years to meet Basel III liquidity requirements anyway. The top 35 US banks are currently about 500bn short. Link (new window)

Debeo Summa Credo: the_geek: Debeo Summa Credo: I guess I agree with you regarding money velocity being slow, but if the rich invested their excess cash in investments or consumption, how would the deficit by financed?

The deficit would be reduced because they'd be paying employees or participating in other economic activity which would increase the tax base.

Ok, directionally you are probably right, however that sounds suspiciously close to the supply side laffer curve economics the right -wingers sell. I'll agree that increased employment would boost tax revenues relative to less employment, but it certainly wouldn't generate enough incremental tax revenue to offset the lost purchases of treasuries. So maybe you get another $10 in tax revenues but lose $100 in treasury purchases (numbers completely hypothetical). This results in gov't spending, all else equal, being reduced by $90. Clearly we'd be in a better spot if everyone sitting on treasury investments decided to invest it today, but it's not like their just putting it in a mattress.

Well, you'd hope they'd invest in businesses that are heavy in R&D, so that their $100 invested becomes a widget that sells 100,000 copies, thus, their $100 allowed someone else to generate $100,000 for the economy, while the investor gets $4,000 return on his $100 investment.

kbotc: Debeo Summa Credo: the_geek: Debeo Summa Credo: I guess I agree with you regarding money velocity being slow, but if the rich invested their excess cash in investments or consumption, how would the deficit by financed?

The deficit would be reduced because they'd be paying employees or participating in other economic activity which would increase the tax base.

Ok, directionally you are probably right, however that sounds suspiciously close to the supply side laffer curve economics the right -wingers sell. I'll agree that increased employment would boost tax revenues relative to less employment, but it certainly wouldn't generate enough incremental tax revenue to offset the lost purchases of treasuries. So maybe you get another $10 in tax revenues but lose $100 in treasury purchases (numbers completely hypothetical). This results in gov't spending, all else equal, being reduced by $90. Clearly we'd be in a better spot if everyone sitting on treasury investments decided to invest it today, but it's not like their just putting it in a mattress.

Well, you'd hope they'd invest in businesses that are heavy in R&D, so that their $100 invested becomes a widget that sells 100,000 copies, thus, their $100 allowed someone else to generate $100,000 for the economy, while the investor gets $4,000 return on his $100 investment.

The $100,000 used to by the widgets would have been used for other purposes, no? Like buying treasuries or paying for haircuts or buying a competitors widget.

I do understand that directionally you would hope to increase the velocity of money and increase capacity utilization, but recognize that every use of a dollar has an alternative use.

dragonchild: They're buying Treasuries, actually. The rich are basically offering to lend their money to the federal government at a loss*. . . and, get this, the people are fully against the government accepting that offer.

dragonchild: If anything, the government basically is doing the rich a huge favor by giving them a save haven to park their money.

You are contradicting yourself here. In your earlier post, you state that the rich are offering to lend money to the feds at a loss and then express dismay that people are against this great deal for the government, then later you say that the government is doing a favor by giving them a safe haven to put their money.

Is it a good deal for the government or the 'rich'? Because if you ask me, the rich lending to the feds, allowing them to finance the record high deficit at record low interest rates is a pretty good deal for the feds.

dragonchild: The government first spends money into existence (otherwise where the hell else do dollars come from), then the equivalent amount is sold in bond auctions to shut D.C. up because Congress is populated with dinosaurs and lazy idiots who haven't kept up with the evolution of economics*.

The government spends money into existence but are required to support such spending by issuing treasuries. The alternative you are suggesting would be just to turn on the printing presses, which is what Zimbabwe and Weimar Germany did. The fed, through its open market operations and other one-off programs like QE1 and QE2, buy these treasuries, which is in effect monetizing the debt and creating money out of thin air. Presumably, when these bonds mature the proceeds will reduce the balance sheet of the fed and decrease the money supply.


dragonchild: It's also why the Fed is able to hold interest rates down. The teabaggers are terrified of rising interest rates, but the interest rate is controlled by this system. Bond demand among the rich could collapse tomorrow and the Fed will just adjust reserve requirements to drag rates back down. The money never leaves the system so there's minimal impact on inflation -- it's just numbers in a computer. The real danger is inefficient spending, which leads to a loss of confidence in the dollar itself (because less stuff + more money = inflation), and I will concede there's plenty of that. But long story short, the rich aren't doing us any favors.

You can only adjust reserve requirements so far down, and as I understand it it is a very inflexible tool - its a big damn deal to lower or raise reserve requirements. They do have open market operations that fine tune the money supply, but it's not an infinite well. If you print enough dollars, either by the treasury doing it or the fed just ballooning its balance sheet, you are going to get inflation.

And if demand from the rich or the Chinese pull away from the treasury market, you're going to either require the fed to print shiatloads more dollars via QE3,4,5 or pay much higher rates. So yeah, we can be grateful that demand for treasuries is so high.

It's funny, you seem to have expressed the same understanding of the financial system as the gold bugs (there are no constraints on the money supply, the government can just finance itself by printing more money), but are reaching the opposite conclusions. Gold bugs believe that our fiscal and monetary policies will inevitably lead to runaway inflation, therefore justifying their idiot purchases of shiny yellow metal at prices that are way out of line with their industrial or commercial worth. You seem to think we can just print unlimited amounts of money as long as we spend it on useful things, and don't need to worry about demand for our debt.

Debeo Summa Credo: You are contradicting yourself here. In your earlier post, you state that the rich are offering to lend money to the feds at a loss and then express dismay that people are against this great deal for the government, then later you say that the government is doing a favor by giving them a safe haven to put their money.

I know that's what it looks like, but put the posts in their proper contexts.

As far as the conventional understanding of our monetary system is concerned, we finance our spending with debt. In this context, the high demand for Treasuries means the rich are "voting with their wallets" and all but begging the federal government to let them finance spending. Given this I find it Kali-facepalm stupid that the very people who need that spending activity the most are also adamant against it out of some irrational fear that we can't finance the debt. The point is even with the outdated understanding of our deficit, one look at yields could tell you that a jobs bill can be easily financed -- the only thing that's missing is political will.

In reality, the government actually spends the money into existence and primary banks are required to bid in Treasury auctions, so the benefit of external Treasury demand is rather marginal. In reality the government is really doing the rich a favor, not the other way around, and we could finance infrastructure spending even without their help.

I'm not contradicting myself; the thing is that gold standard monetary theory and modern monetary theory contradict each other. Yet either way, the political derp level still stays at 11, though.

Debeo Summa Credo: You can only adjust reserve requirements so far down, and as I understand it it is a very inflexible tool - its a big damn deal to lower or raise reserve requirements.

LiquidSky did a better job explaining it. I stand corrected; it's not the reserve requirements so much as a mandatory auction. You are right in that it's not infinite, but I (and MMT) address that further down.

Debeo Summa Credo: The alternative you are suggesting would be just to turn on the printing presses, which is what Zimbabwe and Weimar Germany did.

Debeo Summa Credo: You seem to think we can just print unlimited amounts of money as long as we spend it on useful things, and don't need to worry about demand for our debt.

The link I cited mentions many, many, MANY times that this is NOT the case. You cannot spend and spend and spend. That is the first, biggest misunderstanding of MMT. However, MMT also blows up the notion that there's any sort of optimal spending level or dangerous debt level. Mark my words -- if the U.S. is still around a century from now, the debt will -- not if, WILL exceed $1 quadrillion. And not a fark will be given, because wealth (and by extension, standard of living) is really a function of productivity, not strength of currency. Furthermore, the "debt" is never really collected; it's a meaningless number that sits somewhere between the total amount of bonds issued (the maximum) and the amount of C1 in the money supply (the minimum). That's it. There is no "default" unless the government is mind-bogglingly stupid enough to put a gun to its own head. . . but unfortunately that's precisely what the teabaggers tried to do.

Theoretically, we can have a hyper-libertarian government or full-blown socialism; the money supply has jack shiat to do with it. MMT doesn't flinch at deficit levels, whether they're $100 or $100 trillion. However, there's a direct yet unquantifiable link between government spending and private sector productivity. If the government doesn't spend at all, there's no money to be had, and more importantly you really have anarchy on your hands because a government that isn't doing anything isn't a government. But if the government doesn't spend efficiently or effectively, then you get problems like wealth inequity, low monetary velocity and high unemployment. Sound like a country you know?

Here is where your analogy to Zimbabwe and Weimar Germany is flawed. In both cases hyperinflation was initially triggered by a collapse in private sector productivity -- and the state itself. This led to the desperate measure to print money, which resulted in hyperinflation, but make no mistake: Hyperinflation didn't collapse Weimar; it was already farked. Hyperinflation was the fatal heart attack; not the disease that caused it. For example, Germany was obligated by law to pay striking workers. They were literally paying people to NOT work. The printing presses could've been destroyed and it still would've taken a wheelbarrow full of cash to buy stuff because no one was making anything. Uncontrolled spending can indeed lead to high inflation, but hyperinflation is more indicative of the collapse of a state. To reiterate, Weimar Germany and Zimbabwe were broken states even if hyperinflation never happened.

The reason why a jobs bill or infrastructure spending (which I consider one and the same) regardless of Treasury demand would NOT result in hyperinflation is because the government would be getting bang for its buck. The increase in money supply would've been matched by increase in available goods & services. When the government uses its money to buy up private sector productivity, this leads to both supply and demand growth, i.e., increased monetary velocity, i.e. a healthy economy. Just throwing money around (like entitlement spending or tax cuts) may have some social justice angle, but from a strictly MMT perspective all they really do is increase inflation.

dragonchild: Here is where your analogy to Zimbabwe and Weimar Germany is flawed. In both cases hyperinflation was initially triggered by a collapse in private sector productivity -- and the state itself. This led to the desperate measure to print money, which resulted in hyperinflation, but make no mistake: Hyperinflation didn't collapse Weimar; it was already farked. Hyperinflation was the fatal heart attack; not the disease that caused it. For example, Germany was obligated by law to pay striking workers. They were literally paying people to NOT work. The printing presses could've been destroyed and it still would've taken a wheelbarrow full of cash to buy stuff because no one was making anything. Uncontrolled spending can indeed lead to high inflation, but hyperinflation is more indicative of the collapse of a state. To reiterate, Weimar Germany and Zimbabwe were broken states even if hyperinflation never happened.

I agree, but I would've gone for a totally different way of explaining it. The hyper-inflation in Zimbabwe and Weimar Germany isn't comparable to the US-situation, because their debt wasn't denominated in local dollars. For example, Germany had to pay war reparations in gold, not in paper-marks. This guy (new window) explains it better than I could have.

*cut & paste for those too lazy to click*
"The gold debt is, however, key to understanding the hyperinflation -- with every bout of currency depreciation (relative to gold), Germany had to increase its deficit spending to stay current with its reparation obligations. If, for example, in Period 1, Germany met its reparation requirements by running a deficit equal to 100, and the Mark subsequently depreciated by 50 per cent, then it would have to run a deficit equivalent to 200 to accomplish the same thing in Period 2.

Now run the counterfactual and imagine that the debt was instead denominated in a fixed amount of German marks per year (as opposed to a fixed amount of gold). Suppose further that same deficit of 100 was required to meet Germany's reparation obligations in Period 1 and that this resulted in some degree of inflation that led to the same 50 per cent devaluation in the value of the German Mark. In Period 2, Germany would not have to deficit spend one Mark more to meet its obligations because, we will recall, the liability is a fixed nominal amount (and therefore, its deficit spending for reparations purpose relative to nominal GDP would decrease simply as a result of inflation!!). So no spiral, no hyperinflation, no crisis."

*/cut & paste*

Debeo Summa Credo: You can only adjust reserve requirements so far down, and as I understand it it is a very inflexible tool - its a big damn deal to lower or raise reserve requirements.

Bit of a tangent, but you can easily adjust reserve requirements into oblivion (down to zero, aka no requirement). Here in Oz, the banks only need to store money in the Reserve Bank (our Fed) to clear their settlement balances (what the banks owe each other because of foreign atm withdrawals etc). If a bank has a lot of atms they'll usually end up with a positive settlement balance, so have absolutely no need to store money with the RBA. Wiki tells me that Canada, New Zealand and Sweden don't have reserve requirements either.

Theoretically, you could even push reserve requirements into the negative, by charging banks to store money at the Reserve (while mandating that the banks still use it for clearing settlements or something ... otherwise they'd shove their cash under the mattress rather than storing it in the Reserve.)