Simplifying Economics – Dueling Posts

Our public/government deficit is a one dollar to one dollar balance sheet.  It balances our private sector surplus and our trade deficit.  The only other way to balance our trade deficit is on the back of private surplus; wealth.  In other words, for as long as we’re going to buy foreign products and services with our dollars, the federal government is going to issue bonds to those foreign governments, which are essentially savings accounts at the Federal Reserve.

It’s not rocket science.  If you think about it, it’s only simple common sense.  As long as dollars are taken out of the system, as wealth in someone’s pocket, the system needs to show a shortage; a deficit.

Now, just to be clear, I’m personally all for making the one-percent give back everything they’ve stolen from the rest of us for last forty years, but I don’t think that’s an option.  The options we do have, though, are to be as informed as possible and to make sure our representatives in Congress and State government know we’re informed.

Until we realize that all the other ‘stuff’ that we think complicates economics; entitlements, taxes, big vs. small government, banking, consumerism and everything else that falls under the heading, are nothing more than a by-product of balancing private sector wealth and the trade deficit, we won’t be able to move forward economically with anything even vaguely resembling intelligence.

Thoughts?

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9 Responses to “Simplifying Economics – Dueling Posts”
  1. Gaboo says:

    Okay Jen, rolling up my sleeves and ready to duel….

    Let’s address your points:
    In other words, for as long as we’re going to buy foreign products and services with our dollars, the federal government is going to issue bonds to those foreign governments, which are essentially savings accounts at the Federal Reserve.
    Yes, a debt product.

    It’s not rocket science. If you think about it, it’s only simple common sense. As long as dollars are taken out of the system, as wealth in someone’s pocket, the system needs to show a shortage; a deficit.
    Not if I can put a debt in the asset column. Then I can print money based on that debt product.

    Now, just to be clear, I’m personally all for making the one-percent give back everything they’ve stolen from the rest of us for last forty years, but I don’t think that’s an option. The options we do have, though, are to be as informed as possible and to make sure our representatives in Congress and State government know we’re informed.
    Title is what you’re after, not necessarily book value. Book value can change in different economies. As an asset, I can leverage, pawn, sell, or lease title. So, I want to sell some in high economies, where I might lease out the asset in a down economy. Big money assumes title on assets and revises when economies change. Think of businesses like poker chips. Very few have accounts with hordes of cash, or gold or silver. The funds are moving all the time to conjure profit in the buying and selling of assets. “Cash is so last year” or so to speak. Isn’t the one percent the government??

    Until we realize that all the other ‘stuff’ that we think complicates economics; entitlements, taxes, big vs. small government, banking, consumerism and everything else that falls under the heading, are nothing more than a by-product of balancing private sector wealth and the trade deficit, we won’t be able to move forward economically with anything even vaguely resembling intelligence.
    I’d agree to an extent, theorists got jobs adding column fractions to the basic balance sheet and income statement. Skimming off the public is a losing venture. Playing cash table games is small fry, refinancing countries to gain asset titles is the big game. China could go public at any time by issuing their currency as a tradeable asset. That would suck huge volumes out of the economy as people and their pets buy reminbi and park it.

    Methinks we live in the last days of a ‘promise to pay’ economy that bets on the cheapest upfront costs and favors long term obligation. We had a saver economy and when savers became broke, we got a credit economy. Now that there’s no more credit, people will compete for jobs.

    Economics, a social science, has become an enigma and given far more weight than other sciences/disciplines/arts; economics gets more press than it deserves. That’s probably because banking is boring. Money goes in, money goes out, count the stack and payables better be less than receivables. The term ‘Return on Investment’ has become cache, don’t mind the pun, because boring bankers wanted to make it seem exciting. Central banking is akin to sailing, trim here, luff there, and catch the right breeze to get the best economy of sail. Slow down into dock, maintain control in busy thoroughfares, and hell’s bells when running flat and fair. The economy is also like an engine: fuel, compression, spark. Some fuel money is added when the economy is compressing/deflating with a build up of unspent resources and labor, then a spark happens and productivity goes blasting down the cylinder.

    Problem—the fuel isn’t real. It’s leverage, meaning, people are borrowing large amounts at a low rate of interest and promising to pay back at no fixed date, and that’s okay, as long as the minimum interest is paid. Money gets printed, lent out, and people endeavor to be productive to get some of that money. Alas, what if the the best I can pay is the minimum, and so doth the next guy, and so doth the shop keeper, and every body is just making the minimum payment so long as the debt can grow unrestricted? As a banker, how would I capitalize all this interweave of debt? I could sell it as a product, shares in the payback scheme. The shareholders are actually lenders by an other name. Who are the biggest buyers (shareholders) of these derivative products that are financing debt load? Big money: pension funds, group annuities, insurance…. so with the interest rate so low and big money promising a return, they are buying the derivative products (re hypothicated debt) offered by banks. Who turns in the best economic numbers for it’s debt lenders? Banks.

    Lets say I want to buy a tv. I could buy the tv for ca$h and then take myself out of the market. Or, I could put it on credit, make the minimum payment, and stay in the market, shopping for other toys. This is what the bankers are encouraging people to to do, and to enhance this credit spending, they keep the interest low to discourage saving for the product. Banks make their money on the transaction, and when there is change in the economy. They can be interest takers or interest payers. Now with the ability to grow a debt unrestricted, there is no reason to attract savers. Debt products can be sold to investors. The current economy is designed to grow on debt. This changes periodically.

    The bankers are leveraging little sporadic boom and busts in different industries and markets in order to maintain everybody’s minimum monthly payments. But banks shouldn’t be the economy. Widgets and quality of life should be the economy. The numbers don’t show how well banks are doing, instead they show how far behind other industries have fallen. The people aren’t buying, they are making minimum payments because there’s no Return on Investment by saving. Why save and watch everyone else bid up prices with leverage? Bank investors/shareholders aren’t investing in productivity, they are buying derivative debt products.

    Lots of fuel, lots of compression, but no spark. The baby boomer has passed this way. Turn the light off.

    • jac says:

      I never thought about rolling up my sleeves, does it help? The dueling, I mean? I know it helps doing dishes.

      Well, G, I was trying to start at the beginning. The dollar, the US currency, is based on the value of our economy, which is an imaginary number, or I should say a debatable number. If there is unused capacity in the system-there is unused value. Sort of like stockpiling gold in the old system, it was only valuable when it sat in Fort Knox and mutated into certificates, the value now is economic capacity stockpiled and mutated into debt. The borrowing I’m talking about is the national debt, that other stuff individuals, businesses, banks and the stock market do is secondary, a complicating factor at this point of my thought process.

      There is nothing preventing the US from printing dollars and exchanging them for all the bonds issued, thus no national debt, except the owners of the bonds don’t want to stockpile dollars, they want the safe investment instead; even if that investment pays zero interest because it’s uniquely safe and we are big customers.

      Our national debt is a mirror image of our trade deficit and private sector surplus. When we try to run the economy on private sector debt, like at the end of the 20’s or at the end of the Clinton years and at the end of the Bush years our economy collapses. The only player that can consistently spark growth is US government debt, which really isn’t debt at all, unless or until we have used up our capacity. National debt without the capacity for growth is inflation, but there is no danger of that for the foreseeable future because there’s a huge amount of unused capacity.

      Sector Balances as a Percentage of GDP

  2. Gaboo says:

    I’m not sure how to interpret the chart. It’s plotting a comparison between what and what. If it’s showing consumer debt accentuating govt debt, maybe I get it. Private sector revenues are down, so we are flipping bonds? I was always challenged by graphs.

    “The only player that can consistently spark growth is US government debt” – Jac

    I just realized something… you’re not promoting a market economy. You seem to be advocating a confined arena in which business is allowed to operate under a framework established by govt. Like in China where the govt builds a town and hopes the people will live there. Alas, involving govt won’t make it work. Always seems good on paper.

    The innovation comes from the marketplace and how the deal is done, People are already experimenting with bitcoin and the govt doesn’t have a clue what that means. The market created ‘money’ and the market will withdraw its money.

    Economics really comes down to the relationship between a seller and a buyer. The govt is just paid protection. We business types do our thing and pay a percent off the top to make sure our distribution network is maintained. There wouldn’t be a highway if my trucks didn’t need to get to market. My tax bracket paid for it. They were supposed to just enforce basic rules of order so fair business can take place. They were sort of like paid protection, but I wouldn’t want my security company telling me how to deal with my customers.

    If me and my customers need a road, we will build it. I mean, we built an airline industry—we have some scruples. The govt is there to pen hooligans and ne’erdowells and do it for cheap. If they don’t do it for cheap, I can hire China to be our govt.Sure we need some regulations, otherwise we’d have more airliners dropping out of the sky, but a bureaucrat doesn’t know what an aileron is. The best regulators are my former airline employees.

    As it stands, the govt is a wanton failure. If I ran my books like the govt, they’d put me in jail. It is a sieve on the economy and the money goes for votes. I say subcontract the govt and you’ll get a more innovative system, cost effective, and without the govt/banker liaison that is currently sucking the system dry. I’ll do it for 1.5 trillion. No sweat. There will be a few unemployed bankers and beaurocrats in the unemployment listings. About time they did some real work. We have lots of unused govt programs to tear down and re-green.

    Should I have dealings with a company in debt led by unsuccessful people that are floundering, ha. Sorry, that’s the govt. Other than police, fire and ambulance, what is govt good for? The economy survives DESPITE the govt. They’ve sucked a lot of cash and I don’t see concurrent benefit. I may have called the ambulance once. My brother is a farmer, my neighbor runs a grocery store, another is a trucker, and I sell widgets. Everyone in our sphere of influence is well fed and happy.

    The last time I dealt with a govt person was to get a social worker to retrieve the cellphone and house keys of a friend who lost them whilst unconscious in a public hospital. Somebody had sticky fingers. AAAAnd by the way, all those medical procedures they were performing—private innovations by medical entrepreneurs. Those guys don’t come cheap, but when you want the very best….private business rocks.

    • jac says:

      The chart shows that the public or government deficit is in a dollar to dollar balance with the foreign trade deficit over the last sixty years and that unless it is, the private sector can’t run in surplus. It’s a perfect mirror image. The red is the public or government sector, except for a blip at the end of the nineties, which was the Clinton surplus, it always runs below the zero line. The green is our trade deficit always above the zero line. Once upon a time we had trade surpluses but for decades we’ve run trade deficits. The blue is the private sector, which always runs above the zero line, except for the same Clinton surplus and the debacle caused by two unfunded wars, a huge give-away to pharmaceutical company’s, and lowering taxes, compounded by the Wall Street disaster of the Bush years.

      So, if the private sector is going to run a surplus or have wealth, which I think you’d agree is a good thing, then the government sector has to run in deficit and it has to be in a dollar to dollar balance with the foreign trade sector.

      You seem to think that the marketplace is the be all and end all of capitalism and innovation. I disagree. First, the marketplace is a wonderful place of innovation, but that innovation is freed by government fiscal policy. Also, the big things, like two trillion just to bring our infrastructure up to code, have to come from government policy, otherwise the last thirty plus years of supply side economics would’ve taken care of it.

      Next, real ground breaking innovation, has to come from or be seeded by government policy. I don’t think I have to list all the really huge things that our government has built and the lasting economic freedom they’ve brought to all of us.

      Lastly, an unfettered marketplace has proven time and time again that it leads to disaster unless regulated by government policy. Again, I don’t think you need a list, but every economic disaster this country has faced, came at the hands of capitalists trying to pull the last possible penny out of the economy. For Capitalism to work well for every citizen, it has to be restricted by government policy.

      What we need is an engaged electorate and useful government policy. Educate, involve, articulate, legislate… maybe, that was our founders real goal?

      • Gaboo says:

        On the chart, thanks for the explanation. It still baffles me a bit, but then graphics was a sideline to waxing words—for this pontificator.

        “infrastructure up to code, have to come from government policy, otherwise the last thirty plus years of supply side economics would’ve taken care of it.”
        …..Supply side is looking good. Shipping ports look good, there’s a great Dubai company for that. Airports seem reasonable. Big box retailers are funding communities. The only infrastructure fading is that maintained by taxes, seized in some grand scheme no doubt. Where did that money go? Pensions, favors.

        “I don’t think I have to list all the really huge things that our government has built”
        ……The bureaucratic welfare state will suffice.

        “For Capitalism to work well for every citizen, it has to be restricted by government policy.” …..Fair enough. Now restrict some welfare bum from not working. I’ve never been unemployed, not while there was still some crap to shovel.

        “Educate, involve, articulate, legislate… maybe, that was our founders real goal?”
        ….I think the real goal was that they wanted to get away from some politicians who were making rules from afar.

        • jac says:

          Tongue in cheek pontificating and rolled up sleeves… pulling out all the stops, huh, g?

          I’d agree with most everything you said if there were twenty-million vacant jobs while twenty million welfare bums decided not to shovel crap; if every time the wind blows the power didn’t go out; if there were trillions sitting State’s project funding accounts waiting for construction company’s to start working; if teacher’s salaries matched music idol’s or sports superstar’s or hedge fund manager’s; and, if every person had access to the same education and healthcare.

          Government, my ideal of government, gives every person the same rights and opportunity and is engaged by every citizen. It thinks forward, sets the country’s priorities, provides a road map to follow and tries again if the fourth or fourteenth attempt fails. And, it restricts the greed of Capitalism from blocking those first two.

          I’ll reword my previous last sentence – Educate, involve, articulate and legislate… perhaps, that was our founders road map toward forming a more perfect union.

          • Gaboo says:

            “if every time the wind blows the power didn’t go out; if there were trillions sitting State’s project funding accounts waiting for construction company’s to start working” I don’t wait for others. If I need a wind farm or an atom mill, I build it. If I don’t know how, I learn how. Most people who don’t have a job are probably ranked ‘dull normal’ on iq tests. Blame media and teachers for dumbing down the masses. Now you have to babysit them.

            “if teacher’s salaries matched music idol’s or sports superstar’s or hedge fund manager’s” A good teacher can command their own wage. Sport superstars obviously fill a greater need. We aren’t that removed from coloseum days. The highest paid should be military generals, they do the real work expanding the empire. Medical professionals and teachers come after the wars are won. Big business provides the monetary juice that teachers lust for.

            “Government, my ideal of government, gives every person the same rights and opportunity and is engaged by every citizen.” Some people are idiots. Just like with dogs, cats, birds, roosters, cows, deer, iguanas, some of the herd are just idiots. Nobody is born equal. Equality requires compassion and not everyone carries the same amount.

            “And, it restricts the greed of Capitalism from blocking those first two.” If I could run my business with machines built by some other innovative thinker, I would. I don’t want to hire people. My customers are smart. My suppliers are smart. But if I have to hire some manual help, I choose the brightest and the brightest all have one thing in common, they want govt off their backs and out of their way.

            I love playing the industrial tycoon. There’s no guilt. You should try.

          • jac says:

            Catholic Church made sure there was a current of guilt running along my synapses, top hat and monocle or not. Original sin and all that… doesn’t make sense, but it doesn’t have to, just guilty people that find it easier to go along, than question. Spent most of my formative years trying to rewire, couldn’t. Then, figured it’d probably be better to just not go along with anything mainstream until I absolutely had to and spray paint all the guilt yellow so I could see it. But, I digress…

            Your caricature is mainstream enough for me to be wary. Just tune into FOX News and listen to Ann Coulter, her opinions about fellow citizens in general and women in particular aren’t funny exaggerations. Her views on the economy are also straight out of the industrial revolution and the age of robber baron’s.

            It’s my experience that most of those monocled and top hatted folks aren’t any different from the rest of the multitudes. In the right place at the right time and a bit more ruthless, perhaps, but as for test points ‘dull normal’ seems to be normal for most. Your caricature has just a bit too much genius in the recipe. In actuality, they take advantage of and manipulate other people’s genius.

            Well now, that felt good. Resolve hardened. Up for a game of Monopoly?

  3. Gaboo says:

    We maxed out that thread. Somehow, reviewing, you seem smarter than me. At least that’s they way others might interpret it, due to your fancy charts and that last comment. I know I’ll want to quote it, when I figure out all the angles.

    Someone told me that wealthy capitalists aren’t necessarily the brightest. They just delegate well and want it more. Good match. I get to be the dog. I can’t maneuver the thimble.

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