US Budget for Dummies....

HEY!!! Do you want a ONE HUNDRED TRILLION DOLLAR bill?

You must think people are complete morons. Tell me, if you're "going to default... anyway" then why in the world would I loan you money?

Practice what you preach. Loan me a million. I guarantee I won't pay it back but I want it, so 'loan' it to me. Wait, make that a billion. You might as well 'loan' me a lot since it's never coming back.

If you want to live in a bankrupt third world economy then why don't you move to one of them?

It's not clear the FED has much more of an option than a family does. Like, for example, a family member taking a second job, or junior taking on his first. And that does happen. It's not an 'easy' solution and a family with the above financial situation is probably in more trouble than almost anything will solve. On the other hand, under normal circumstances it would be almost impossible to get into that situation because credit car companies won't give you that much credit at that income level.

History shows that CBO projections of 'expected revenue increase' are uniformly wrong and we're probably already on 'the other side' of the Laffer curve.

However, the idea that the 'soak the rich' tax increase has anything to do with solving, or even just 'helping', the deficit problem is a farce. President Obama himself answered the question in a TV interview where he explained that even if it lowered revenue he'd still do it.

It has nothing to do with 'the budget' but his ideological goal to 'redistribute' regardless of the consequences.

Which was one alternative Pres. Obama flat rejected. He'll go for that on round 2 because it's one more way to 'screw the rich' and that, after all, is the whole point (as he himself explained).

And that is the biggest farce of all: that in a 3.8 trillion budget there's just 'nothing' that can be cut.

Of course, that's already been done. It must have been because President Obama promised in his FIRST election to personally go through the entire budget LINE by LINE eliminating waste and, as he said this time around, he "does what he says." Never mind that not a damn thing was cut and an actual 25% baseline increase.

A family in that much trouble probably DOES have a 'budget' but the Democrats in Congress, both House and Senate, haven't even proposed, much less passed, a budget in 4 years, despite it being required by law. President Obama has but it takes Republicans to bring it up for a vote because his budgets are so comically ridiculous not even a single Democrat will vote for any of them.

And no one is voting our tax and spend like there's no tomorrow President out of office either. The difference is 'dad' probably gives a crap because it's actually his money, debt, and he'll be sleeping in the sewer unless something is done, and fast. Obama, Reid, and Pelosi won't; "The People" will.

No, it *is* 'credit card' debt. A car or mortgage is a secured loan and while one is obligated to pay over a set time period you also possess the asset so, as a matter of net worth, you are usually in the black. In fact, being 'upside down' is a 'problem' and politicians fall all over themselves pretending to 'do something about it'. But the typical case is you might 'owe' $100,000 on a house worth $117,000 (depending on your equity) but if you "can't pay the bills" you could sell it.

If the soon to be 16 trillion (which is only the public debt) were due to the Louisiana Purchase or Seward's Folly then you might have a point but it's not. There are no 'assets' being purchased, just pure consumption... except for the, so called, 'shovel ready' infrastructure projects that Obama later laughed weren't actually there in the 'stimulus' toilet flush.

You see any Hoover dams being built? Another TVA? Expansion of the Interstate Highway system? Nope. The 'joke' is on "The People."

In other words, the government can make everyone's savings, like saving up for your kid's education, your 401K, retirement, down payment on that home you've been looking forward to, or whatever, worthless, not to mention skyrocketing the cost of everything. But, then, President Obama was already planning to, in his words, "skyrocket" the cost of electricity before we even get to inflation.

Thank goodness our Dear Leader is here to 'help'.

Get used to an ever declining standard of living, the 'new normal' as they call it, because the left in this country thinks you've got it 'too good' already, and we aren't talking about 'the rich' here. They'll be protected because, after all, who else are we going to 'screw' for all that 'free money' the government 'redistributes'?

Actually, no it isn't. All you've done is explain how government has 'the ability' to screw it up infinitely worse than an individual does with the 'big difference' being the family unit will suffer the consequences... whether they were the ones 'at fault' or the politicians were.

It really is 'simple'. Spend 40% more than you take in and eventually you'll go bankrupt. which is exactly what the Obama administration's '10 year' projections show: perpetual trillion plus deficits for as far as the eye can see, and that's with 'estimates' everyone agrees are 'optimistic'. That's just the general fund and is in addition to Medicare and Social Security also going bankrupt, not that the general fund can pay what they owe to either of them anyway.

The 'new normal' for pessimist vs optimist.

Pessimist: We're going bankrupt! Optimist: Yeah, so what's the problem?

Last year it was $3.54T in spending on $2.45T in collections, = 44% more than we took in.

Those benefits simply won't be paid at current levels. It's not possible. But, they won't/can't go bankrupt, per se--they're just taxes, which the feds can always collect and redirect to the beneficiaries, albeit at lower levels.

I agree with Les that it's not necessarily bankruptcy in the sense of an abrupt, catastrophic collapse--a protracted general malaise and degradation seems more likely. Collapse isn't impossible, but it doesn't serve our creditors to press for it.

It would just be nicer if Sandra Fluke could buy her own birth control pills, and leave the nation as a whole in much less precarious position.

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Cheers, 
James Arthur

The new printed money devalues existing money. This is called inflation. At a base level, inflation is good for debt holders as it decreases the magnitude of their debt. It is bad for savers, and it decreases the magnitude of their assets. It is also bad for the working class, because wages don't typically increase along side it, and they are usually in debt with an interest rate far higher than inflation.

The fed uses inflation as a tool to lessen the amount of debt they have, but the interest is still paid.

However, the net effect is that those entities with assets in USD are having their cash's value transferred to those with debts in USD. One argument for having inflation is that it encourages "savers" to become "investors" and cause a positive feedback into the economy. Unfortunately it also encourages people to become over leveraged and we have the Housing Crises and other issues.

Just my 2 cents (adjusted for inflation).

It's also good for the government because the inflation and the subsequent wage adjustments put more people into higher progessive income tax brackets and the gov. can collect capital gains taxes on transactions where the gains are purely due to inflation.

Den 02-01-2013 02:44, flipper skrev:

"People" a.k.a. countries actually, have little choice: The US Dollar is what Buyeth The Oil! People, who trade Oil outside of the reserve currency, gets some "trade embargo", "arab spring" and "humanitarian intervention" coming to their way soon enough.

*Everybody*, with the possible exception of Europe, knows exactly what the gig is: But life & trade has to go on nevertheless! "The world as it is" and all that.

But there are portents.

Russian wheat and Chinese rare earths are becoming hard to buy with USD. These trade restrictions are coming as a consequence of "people" knowing that "the US will default somehow, so maybe we don't want to exchange all our good stuff for not-so-good money". The US have trade restrictions the "other way" too. "People" holding trillions of USD cannot freely buy companies inside the US - the decent ones are always "of strategic importance". The US has erected a barrier against the flood of money it creates.

States are different to people - If you owe me, I can eventually send the boys round to sort the matter out. With a strong state, there is nothing the investors can really do except reach a settlement. With a weak and corrupt state the creditors may even use the government to extract as much value as possible until "the revolution"(tm) happens. This is indeed how it goes, there is a lot of propaganda on the subject because it would be pretty bad for "investor confidence" if enough people to matter at elections found out how easy it is for a nation state to default compared to an individual situation. BASEL II even assumes that government debt is as good as cash - which means that banks, like f.ex. Deutsche Bank, can legally pledge Greek bonds as reserve capital and leverage them 50 times!

f.ex. Turkey went bust in the 'noughties - 2001 - I think. One great thing for the Turks was that they had just bought new telecom networks from Ericsson and Motorola. Nobody came and repo'ed that while Ericsson had to sack 30% of the workforce (Motorola was bailed by the US government).

Now Greece and Ireland are being sucked dry, being what economists call "responsible", while Iceland (irresponsible, default) is recovering fast.

Like Detroit? Nah, it's wasted effort - the third world is moving here already and their economy is following ;-)

cite?

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that's a troll not a cite.

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On Mon, 31 Dec 2012 12:33:14 -0700, hamilton wrote:

First let's change to the more accurate euphemism "create money" rather than limiting ourselves to a printing press since the vast majority of 'money' is not in actual printed or coin form.

So, how is money 'created'. Money is created by debt. Say you put $1,000 (never mind, for the moment, where that came from) into a bank. The bank can then loan 90% of it (10% is, by banking laws, required to be held in reserve). You, of course, say you have $1,000 "in the bank" and the person who borrowed $900 has, well, $900 so the 'money supply' is now $1900. The same thing goes for business borrowing and, indeed, all borrowing.

And therein lies how the government, in the original euphemism, 'prints money'. Actually, the government doesn't; the Federal Reserve System (Fed) does. The Fed was expressly created by Congress to 'manage the money', including the money 'supply', but is considered an independent entity, albeit supposedly under Congressional 'oversight'. So, as far as 'creating money', the 'government', per see, is not doing it. The government issues bonds on the 'open market' and if the FED decides the money supply should be increased then it purchases some and the government owes interest on those just like if anyone else had purchased them (which answers your question).

So where did the FED get the money to 'buy' the bonds? No where. It comes from 'thin air', poof. The FED simply writes in it's books that it 'has' X dollars and then uses them to buy bonds (or any other financial instrument).

As for the *actual* 'printing', the Treasury prints them but those are 'purchased' by the FED for 2 cents per note, regardless of denomination, and then 'circulated' only to the extent the FED determines there's is a need for 'physical dollars'. But the 'printing' of physical notes is merely a convenience for 'small transactions' and irrelevant to money creation. They're just a 'physical representation' of a 'thin air' entry in the Fed records and have nothing 'backing' them, such as gold or silver, other than, as the saying goes "the full faith and credit of the U.S. Government."

The organization of the Fed is rather complex combination of government appointees and officers elected by private (member) banks with the 'primary' power arguably on the government appointee side. They operate under the laws and regulations as set forth by Congress but exercise 'their judgment' in fulfilling statutory goals. Their 'independence' comes from an idea similar to how the Judiciary is allegedly 'independent'. I.E. the government appointee terms are staggered and for 14 years, allegedly isolating them from the whims of a particular administration.

The 'problem' we find ourselves in, then, comes from two sources. First is massive borrowing by the Federal government and the second is how the Fed is 'managing' the money supply. And while allegedly 'independent' (debatable) the Fed obviously has a 'stake' in seeing it's 'creator', I.E. the government, survive so irresponsibility in one can induce wacky decisions in the other, even if the latter were sane to begin with.

That's the 'sales brochure' picture so now let me give you some scary but real examples. The Federal government 'fabricates' most of the 'economic indicators' everyone uses to make decisions with. Yes, really. Everyone probably knows, by now, they underestimate unemployment by not counting people so discouraged that they've given up active job seeking (or even simpler, fell off the unemployment insurance rolls). See? The unemployment problem would be 'solved' if those persistent bastards would just give up looking for work, which was why they changed that calculation back in the Kennedy Administration. They wanted 'full employment' and, as governments love to so, the simple solution was to just stop counting the 'problem' and, voile, 'problem' solved.

But that's just the beginning. The government also misrepresents inflation by not counting, believe it or not, food and energy costs. Really now, you don't 'need' to eat, do you? On top of that, they 'deflate' the cost of things they think have 'gotten better'. Like, they'll see a $300 TV but note it has a 'better display' than last years $300 TV and decide it's really only $200 in 'equivalent' value to the previous year, so the price 'went down' despite you having to pay $300 for one. A new telephone, with fancy features, will be discounted but the fact it's life might be only 4 years, as opposed to an old time rotary that lasted, say, 30 years 'doesn't matter'. Only calculations that make things 'look good' are used because, well, that's the 'purpose' of it. After all, that's what people vote for, 'imaginary good feelings' like "yes we can."

That's just the tip of it and if those haven't made your eye bug out yet this one will. When prices on a thing go 'up' the government has decided that people will then 'substitute' something cheaper, so they don't count the thing that went up but the cheaper 'substitute'. So, you see, if you used to eat steak but, with prices the way they were, moved down to rump roast, then hamburger, and are now on baloney sandwiches then, congratulations, there has been no inflation of food prices. And whether you did or not the government 'decided' you did, so there.

Along the same bizarre logic, if prices go up on a category of things, like healthcare, the government has divined that people will use less of it so they 'discount' how much of that 'increase' goes into the inflation calculation. For example, healthcare is around 17% of the economy but when used for calculating inflation it is weighted at only

6%, so the 'impact' of rising healthcare costs is cut to 1/3 of actual. You do that too, right? Like, decide to not get sick this flu season because health costs have increased. You'll just use less, so says Uncle Sam.

These 'rosy' (arguably falsified) calculation methods were 'invented' by the Clinton Administration because, like those before, he wanted to 'look good' too.

Getting pissed yet?

Well, they do the same thing with GDP. Basically, they fabricate a number better than reality using bizarre logic like the inflation numbers. For example, do you have a 'free' checking account? Well, they decided that a checking account should actually 'cost' something so that you get one for 'free' is counted in GDP despite there being no transaction of any kind involved. And they do the 'reverse' of inflation for equipment. Where they 'discounted', in inflation calculations, what they deem to be 'better features' they inflate their economic impact since those 'better features' are divined to have 'more value' than what was paid for them. That's cool, eh? A $1000 computer might be only $600 for inflation but $1400 for GDP. Remember, it's all about 'looking good' and that keeps inflation low, good stuff, and GDP high. What could be 'better'?

And people wonder why none of the numbers ever seem to make sense. Well, they're not 'confused', they're right.

Btw, these 'fuzzy numbers' might make you wonder about one of the 'proposed solutions' to Social Security, which is to 'adjust' the CPI (inflation) calculation to an allegedly 'more accurate' number reflecting 'actual' inflation. No, what they mean is one that is in line with the rosy 'fuzzy number' fabrication they now use.

Even the, so called, 'national debt' you hear tossed around ad infinitum these days is a fabrication gratis the Johnson Administration, which created the "unified budget": a 'nice sounding' name for pretending that money borrowed from the Social Security trust fund wasn't borrowed. That was to hide the cost of the Vietnam war and works thusly. Social Security was running a surplus but since that is a separate trust fund it showed up there and when the general fund borrowed money from the trust fund it showed as general fund debt, as it should. What he did with the 'unified' budget was include SS along with the general fund so a SS surplus went into the debt calculation as a surplus and, then, when we borrowed money from SS that surplus simply went back to 0. I.E. we took X million into SS, the general fund borrowed X million and the debt increase is 0 because we just tossed it all into the same bucket, despite it being a separate bucket. All the surplus is spent, but shows as 'nothing happened', and there are a bunch of IOUs, in the form of government bonds (debt), that shows up no where in the budget calculations (just in the trust fund). See? That LOOKS GOOD. We get to spend X million more dollars without showing one red cent of borrowing or of increasing the 'debt'. So the money that has been 'saved' in the trust fund to pay for future obligations, meaning NOW that the baby boomers are retiring, are to be paid by government bonds they never reported as debt, but are there anyway. This, btw, is how you get the seeming contradictory statements about SS 'solvency' yet there is this mysterious 20 trillion of unfunded liabilities. That's the money SS 'saved', so their books show they have it (currently solvent), but it was 'never reported' by the government as money borrowed (unfunded liability). Of course, ever increasing payments 'to' Social Security, which can be nothing but general fund deficit spending, will not 'look good' at all now that the general fund has to pay off those bonds they never reported as debt so it will be interesting to see what they fabricate for that one.

In short, just about everything our government reports is fabricated nonsense and then the Fed makes 'wise decisions' (sic) on how to manage the money supply based on these economic fabrications, plus the fabrications they come up with because, after all, they want to 'look good' too.

So the people complaining that the federal budget is 'not like' a family budget are correct, but just not in the way they meant. It's 'different' because they can lie their ass off, and get away with it, with the only consequence being whoever comes up with the next 'good sounding' lie gets elected because no one wants to hear 'bad news'. "Yes we can." Yes we can, what? Don't ask.

Think I'm kidding? Okay, let's imagine we elected, today, someone who 'tells the truth'. The debt is 16 trillion and the next day he truthfully 'corrects' it for SS debt to 36 trillion. Do you think he's going to survive to the third day in office to correct for the Medicare Trust Fund's unfunded liabilities? If he does the debt will then be 76 trillion so give me odds on the 4'th day. If so and he truthfully corrects for federal government employee pensions the debt will be 100 trillion. Give me odds on the 5'th day.

Don't take those as 'actuals' because I may be off 10 trillion here and there but, hey, we're not counting any of it anyway so no big deal.

Wouldn't follow that the "link" is simply to look up "CBO projections"? ...Jim Thompson

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| James E.Thompson, CTO                            |    mens     | 
| Analog Innovations, Inc.                         |     et      | 
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I love to cook with wine.     Sometimes I even put it in the food.

Oh, good Lord. You wouldn't follow a cite I gave and it's *trivial* to look this stuff up. What an ass.

This post is a clasic! I better save it because I've never seen the current situation explained as well as this.

My main beef is with the Fed that to my understanding was established with the primary goal of maintaining the value of the Dollar. But look what happened since they removed the gold backing of the $. The value of today's $ is nowhere near what it was in years past except in the mind of IRS when they compute capital gains and taxes owed on that. Stimulating the economy with money supply is not and should not be the job of the Fed. But maybe I'm wrong. What do you think.

Good post, but isn't it all risk adjusted? If I borrow 100K from the bank to build a 200K house and pay it back when the house is sold, isn't the money supply increased 100K without printing any money? In a gold standard economy, the opposite would occur. If I was a buyer, and knew the prices of houses are declining since there will be more of them with a limited supply of gold, I would wait for prices to fall before buying the house. Not good for the economy.

-Bill

The $100K is created when the loan issues. Then a house worth $200K is created, a total increase of $300K. When you pay off the $100K, it's still there plus interest at the bank.

No, same thing. The only difference is that an authoritative entity publishes a fixed exchange rate between gold and the currency in a gold standard system.

There was still fractional reserve banking under the gold standard, and at different reserve requirements. You get just as many panics and failures with gold as with pure paper currency. if gold worked, we'd still be doing it.

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Les Cargill

Despite the seeming simplicity that's a complex question.

First, one needs to look at the preceding history, which is rather long, but, to summarize, the nation had no 'central bank' and experienced numerous economic 'crashes' with the 'final straw' being the panic of 1907. J.P Morgan pledged large sums of his own money to shore up the banking system (for the second time after saving the US Treasury in 1895). The Fed was established in 1913 with the bill stating it was:

"An Act To provide for the establishment of Federal reserve banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes."

For our purposes the salient point is "to furnish an elastic currency." In simplistic terms the idea was to stabilize the economy by making 'credit' available to banks during a run (as J.P. Morgan had), or other economic crisis, and then, ostensibly, shrink the money supply back to 'normal' once the crisis had passed (the 'elasticity'). This also includes 'regulating' the banks for the obvious reason you don't want them being 'irresponsible' and then coming to you for a bailout. (sound familiar?)

Well, then there was 1929, arguably a rather bad thing since we call it "The Great Depression," and, nostalgia notwithstanding, the post war period wasn't exactly 'ideal' either. In the early 70s things got SO bad that both inflation and unemployment hit, hold onto your hat,

6% or so (and you think 8% is bad). This was so catastrophic, on a plagues of locusts biblical scale, that President Nixon instituted wage and price controls in "the land of the free." Clearly, something needed to be done.

At any rate, since 1977 the Fed has had a, so called, "dual mandate," which is actually a triple mandate as written in the act: "The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of ----------------> maximum employment, stable prices and moderate long-term interest rates.

That says nothing about which side of the laffer curve you are.

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I can look stuff up, but I'm not the one making the silly claims

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Tax rates decrease => revenue increase, does. It's happened every time it's been tried.