"worthless" paper - how taxation makes money worth something

This is false.

Explosive growth in economies was virtually non-existent until the industrial age. Even in Europe there were centuries of negative growth. The invention of capitalism was facilitated by the legal infrastructure of the limited liability corporation. The capitalists were the most influential factor in the growth in central governments and state economic intervention. The reformers came very late in the game, and hopped on the bandwagon. They did not build the bandwagon.

And yes, demand can be created by fiscal policy, just as money can be created by banks. This is the secret of the universe. It's simple, easy to use and is capable of solving all of our economic problems. But the people who wield these tools don't want to solve them; more specifically, it is not in their interest to do so. They are aided and abetted in their inaction by simple ignorance or people who actually believe untruths.

 

Only the right is clueless and Causeless regarding fiat money; it is backed by the People and subject to a potential, "capital call".

 

Your commitment to libertarianism explains your ideolocal delusion
Your falsel claimed humility must had a different source

 

Just right wing, Orwellian fantasy while claiming to be for the "gospel Truth"; how like the right.

 

Let's not forget that this money (or wealth, to be more exact, because that's what it represents) has to come from somewhere. The government can't spend money without taking it from somewhere else.

Even the Central Bank (i.e. the Federal Reserve in the U.S.) can't create wealth out of nothing. They can "expand" the money supply as much as they want, but that does not change the total worth of all the money they have put into circulation. In fact, even the a change in the tax rate would be unlikely to change the value of money, so long as the government spent the same amount they received in tax revenue.

What the Central Bank can do, and is doing, is to make the money worth less and less by subsidizing low interest rates for government debt. If it wasn't for the Fed, the immense levels of government debt would be driving interest rates up in the economy. Let me be clear, this isn't just diluting the value of the dollar by adding more dollars into the economy; rather it's creating inflation without adding more dollars (amount of dollars remains the same, but they're all worth less). Because when the Fed buys up government debt at inflated prices (which is really what it is, since the interest rates on that Treasury debt are so low) it debases the Reserve Assets on their balance sheet—the reserve assets that back all U.S. dollars.

Sorry, let me be more specific here. Expanding the money supply and putting more dollars into circulation does not necessarily cause any inflation, if the Central Bank actually managed their portfolio like a normal investor (which they don't do). Who cares if there's more dollars in circulation? There's also more assets on their balance sheet. It balances out, and that's theoretically how it's supposed to work. But when the Central Bank subsidizes government debt, and by doing so is effectively giving them free money, that is what is going to cause inflation. The increase in money they have issued is not fully matched by a corresponding increase in the real value of the assets on their balance sheet. When the Central Bank says their assets are worth more than they are, that is exactly what they become worth. And then all the money becomes worth less.

There is an intrinsic market cost to lending the government money. The Central Bank can't just temporarily expand the money supply to give someone an interest free loan and contract back the money supply to what it was before. If the central bank buys an asset out of the market, they have to account for the interest that asset would have generated. What I mean is that if they just print more money to buy something and then sell it back a few years later, that act is going to inflict a lingering cost of inflation onto the economy, even though the money in circulation at the end of this scheme is exactly the same as it was before. There's no way for the Fed to take "free money" out of the economy.

Yes, can all be very complicated and difficult for ordinary people in the public to grasp. And unfortunately there is a lot of money at stake and the people in control may be taking advantage of the people and politicians who are not able to understand what's going on.

 

Improving the circulation of money must promote the general welfare and the general prosperity.

 

yes and not thanks to fiscal policy but thanks to the supply of new inventions. So if you want to know what makes an economy grow now you know- the supply of new inventions. 1+1=2

 

if so why is the liberal so afraid to tell us how the "secret of the universe" can create real demand. Why does your fear teach you?

 

1) Not a liberal.
2) Not afraid. Mostly bored, usually just plain disappointed.
3) My journey through economics has been a three-decade long twisting path through many false ideas and dead ends. One thing I can tell you is that it takes a lifetime of discipline and brutal honesty with yourself to cut through all the BS. Unless you have an exquisitely finely-honed BS detector, you will almost inevitably fall prey to one of the many Ptolemaic/Geocentric economic systems.
4) The secrets of the (macroeconomic) universe are not secret at all. They are deceptively simple, but it takes a first-rate mind to understand the full implications. Since I have a second-rate (or first-and-a-half-rate) mind, it's taken me a long time to rule out all the wrong stuff.
5) If you're interested, here's one place to start:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625

 

Ted, Ted, Ted.

There are necessary conditions and sufficient conditions. Taxation is a sufficient condition to establish a demand for currency. You understand I said demand, not value, correct? There are other conditions which also establish a demand for currency.

 

A truly rational market would mean everybody has exactly the same level of knowledge about every product and would be able to calculate risk -rationally- and make a rational decision. This isn't the case and it's the reason mainstream Neoclassical economic models leave out the unfortunate irrational realities of the real market- like debt.

It's the reason mainstream economists like Greenspan and Bernanke didn't see the Great Recession coming- it didn't fit their flawed, unrealistic, "rational" models.


Their models are a little like the old story of the blind man identifying an elephant by touching the tip of the tail only.

The 2008 GFC and consequent Great Recession was caused by greed, Ted. All bubbles are caused by greed and optomism -both very human, both very irrational , both left out of standard economic modelling because they don't fit the dream of rationality.

As for your assertion that it was causd by over regulation. The last time it happened was 1929, another time of unregulated banking, but at least that time we called it what it was -greed- and didn't dress it up in bogus free market rationality.

Though I do find it touching that inspite of all, inspite of history, inspite of reality, you still believe.

 

Currency makes it easier to trade your products so it stands to reason that the value of money is in production. Without the goods and services to buy, your money really is worthless.

 

And yes, demand can be created by fiscal policy, just as money can be created by banks. This is the secret of the universe.

I agree with everything you've said except banks create money. Governments of nations with sovereign fiat currency can create money, not banks.

Timely fiscal stimulus by the Australian government in 2008 prevented Australia going into recession. The government guaranteed all the banks- which stopped the run before it got started- and gave every Australian adult $1000 with the simple instruction to spend it.

It worked beautifully. Confidence was restored. No bank had to be bailed out.

I do worry for the future that the banks will take advantage of the guarantee because they've done their part to create a private credit bubble 186% of GDP and most of it is in mortgages. It shouldn't be a problem because a nation with sovereign fiat currency can invest whatever and wherever it likes in its own currency, but three decades of the household budget analogy and its cries to cut the deficit have produced a political climate where the people really don't know that.

 

For 3rd time:
why not cut the BS?? why is the liberal so afraid to tell us how the "secret of the universe" can create real demand. What does your fear teach you?

 

Econ 101 class one, day one: when you have 132 liberal govt programs to get people into homes the Republican free market said they could not afford you dont have unregulated banking. When the Fed is stimulating the economy by printing enough money to cause a huge bubble, when Fan/Fred is buying or guaranteeing 75% of the subprime and Alt A mortgages, and when the Greenspan Put promises to never let housing prices fall you don't have anything close to unregulated banking.

You need to start all over. Sorry to rock your world.

 

utterly illiterate
1) how can fiscal stimulus help rather than harm economy
2) Australian economy was nothing like USA in 2007 so comparisons are 100% stupid!!

The China Syndrome is often cited as the single most
important reason the Australian economy weathered the downturn. Economist Neal
Stoughton, head of banking and finance at the Australian School of Business,
argues that Australia had to do very little to stimulate the economy when the
crisis hit. The stimulus measures in Beijing were all that was needed, he
argued on a href="http://blogs.bnetau.com.au/aussierules/2009/09/02/time-to-stop-the-stimulus-btalk-australia/">recent
edition of BTalk Australia on BNET.

 

dear, nobody is talking about truly rational market just about the wisdom of crowds, in this case 330 million Americans as opposed to a few libturd bureaucrats guessing about the economy from Washington. Now do you understand?

 

again sadly and totally illiterate as if a group of economists like X and Y saw the Great Recession coming thanks to their unflawed and realistic models. Who is this group? Are you one of them? Did you make millions because you saw it coming. Any evidence?

 

again 100% illiterate!! as if people suddenly got greedy in 2007

 

so is the need to buy stuff with currency. Do you have any idea what point you are trying to make? Any idea at all??

 

Well, I seem to recall SOMEONE claiming the market was rational. What did they say again?
Oh yes! Here it is. It was you:

"Quote Originally Posted by Ted View Post
you are correct that the market is very very very rational indeed, but it is far far less so when the govt is interfering with it and thus blinding people from its price signals. Do you understand?"

But then you went on to demonstrate twice that the market isn't rational at all.

 

NOWHERE did I write or imply that greed appeared from nowhere in 2007.

 

Off the top of my head:
William Mitchell
Nouriel Roubini
Ann Pettifor
Steve Keen
Dean Baker
Raghuram Rajan
Peter Schiff
and Minsky

 

You quote ONE economist who happens to a banker. How persuasive.

2. You're right. Australia and the USA are not both democracies. They don't both have a mix of capitalist and nationalised industries and/or services in their economies. They don't both have banking. They both don't have growing levels of personal debt. They both don't have cut backs in public spending. They both don't issue sovereign currency. They both don't have three tiered governments -each collecting revenue. They are totally different.