US Budget for Dummies....

The Fed has a dual mandate - price stability and reducing unemployment. The second mandate was from the Humphrey Hawkins bill of 1978 ( 1977? one of those).

It's messier than that. In parts of the economy, a dollar still buys the same, but in other parts, no. you/I mainly see that because of oil shocks and either entitlements or commodities that are under subsidy that are indexed to inflation - and some other stuff.

The "other stuff" includes real estate, education, medical care and government. Real estate now, not so much. Each of these things has regulated supply ( not necessarily government regulated ) and rising demand because of GDP growth and population increase.

A great deal of stuff gets cheaper year by year, when measured by labor needed to buy something. Even subsidized commodities get cheaper. Even automobiles have, adjusted for improvements, stayed a lot the same for the last 20ish years in pure dollar terms. There's been like 1 or

2% annual increase in price, even though the offerings are usually better ( have air bags, ABS, better engine control , other stuff ).

It is part of the job of the Fed. Inadequate money supply causes deflation - the overall goods and services go up due to GDP growth, population goes up. The money supply has to adjust to accommodate that growth.

Inflation is painful; but deflation can threaten the basic fabric of society. If the value of a dollar *goes up* ( which would happen even if the amount of currency,credit & specie were merely fixed ) then people are incented to hold currency rather than let it at interest, and economic activity plummets.

The question is how to regulate and govern the money supply. It is not clear that economists know how to do this; indeed, it's nearly clear that they don't . There are at least two camps and neither of the two main ones seems to work.

Our central banks are made up of ... bankers, and they have biases.

--
Les Cargill

There seems to be two type of bankers.

Ones that are interested in the economy and people who use it

and

"other" that want a profit no matter who gets hurt.

Glass?Steagall "fixed" the economy in 1933 from the "other bankers", and "Phil" Gramm stole it back for them.

hamilton

It's still a bit confusing. When the 100K loan is created, how does it show up on the books? An asset or a liability? When the loan is payed off, you say the money is still there. Who has title to the money? How much profit was made by the bank?

-Bill

One each. That's why I used the term "created". The regulating agent is reserves, not assets nor liabilities.

The new equilibrium* is the same as the old equilibrium plus the interest paid, minus costs.

*after the loan was struck, then paid off.

We're a bit off course already - it's ultimately about various ratios in the accounting of the bank, not so much absolute figures. It's a bit complex, but not too bad.

Please notice how T-bills get used in the story at the link. And that would be for a small, community bank, not a big commercial or iBank. Also note how the income statement works.

interest paid minus costs. The $100K is not shown as profit.

--
Les Cargill

That's political partisan hack nonsense. Hell, In 1935 Senator Glass himself tried to get what you call "Glass?Steagall" repealed.

President Bill Clinton was full force behind the 'repeal' and in his signing statement for the GLBA summarized the established argument for repealing Glass?Steagall Section's 20 and 32 in stating that this change, and the GLBA's amendments to the Bank Holding Company Act, would ?enhance the stability of our financial services system? by permitting financial firms to ?diversify their product offerings and thus their sources of revenue? and make financial firms ?better equipped to compete in global financial markets.?

As for the sub-prime loan crisis, none of the alleged 'problems' were regulated by Glass?Steagall to begin with so repealing it had ZERO effect on them. Disgraceful mortgage underwriting standards, virtually required by law (because we want people who can't afford a home to have a home. Notice a 'problem' in this goal?), did not rely on any new GLB powers and 'free-standing investment banks' including Fannie Mae/Freddie Mac, not the, so called, 'banking-securities conglomerates' permitted by the GLBA, were the major producers of dodgy MBS based on 'no ask, no tell' Fannie Mae mandated sub-prime mortgages.

Securitization was not an activity authorized by the GLBA but, instead, had been held by the courts in 1990 to be part of the business of banking rather than an activity proscribed by the Glass?Steagall Act. In 1978 the OCC approved a national bank securitizing residential mortgages and, of course, the monster in the room, Fannie Mae, was a GSE created by Congress in 1938 who's entire purpose was securitizing mortgages in the form of mortgage-backed securities (MBS). Btw, guess what, in this whole debacle, was the first damn thing to go bankrupt: Fannie Mae. Fannie Mae and Freddie Mac were essentially 'exempt' from the regulations required of other financial institutions including, as but one example, capital/asset ratio requirements (gee, no 'risk' there, huh?). Not only that but money market funds are required to be 'diversified' so that a 'catastrophe' in one investment is limited. Guess what the one and only exception was: Fannie Mae and Freddie Mac, our 'government darlings'. (well, what could go wrong?)

The 'investment banks' and other, so called, ?shadow banking? firms that experienced 'runs' precipitating the financial crisis (i.e., AIG, Bear Stearns, Lehman Brothers, and Merrill Lynch) never became ?financial holding companies? under the GLBA and, therefore, never exercised any new powers available through Glass?Steagall 'repeal'. The ones who DID take advantage of the, so called, 'repeal' remained afloat. In addition, the GLBA enabled an orderly resolution of troubled investment banks by allowing their assets and liabilities to be absorbed into a bank holding company, with its full complement of regulation, strong capital requirements, and on-site examination, prevented the failure of some who would otherwise have had no options and without which what little confidence that remained in the midst of the global financial crisis would have been destroyed. In short the, so called, 'repeal' helped to mitigate the crisis.

In fact the, so called, 'repeal' only affected the affiliation provisions in Sections 20 and 32 of Glass?Steagall but restrictions on banks in Sections 16 and 21 remained in effect.

Post crisis President Clinton has always maintained that the, so called, 'repeal', had nothing to do with the sub-prime crisis. Pres. Obama opposes 're-enactment' as well and, in 2009, Treasury Secretary Geithner testified to the Joint Economic Committee that he opposed reenacting Glass?Steagall and did not believe ?the end of Glass?Steagall played a significant role? in causing the financial crisis. So there you go, a whole basket of democrats and 'liberals' who say you're full of cow patty.

Mindless partisan hackery where 'the other guy' is a universal 'evil doer' but 'your guy' is a 'messiah' is why this country is a basket case because people who do that never put so much as one brain cell to work on reality.

does not, perhaps never does, as eveidenced by the continuing lack of a cite.

--
?? 100% natural

I explained that, moron. You wouldn't look, as evidenced by the fact that you're still an ignorant ass (it's been discussed here *MANY* times).

A moment of clarity. Still, no reprieve.

I guess, in the world defined by Jason Betts, increasing taxes on a poor economy increases revenue?

Go for it. The sooner the fire starts, the better. Let 'er burn >:-} ...Jim Thompson

--
| James E.Thompson, CTO                            |    mens     | 
| Analog Innovations, Inc.                         |     et      | 
| Analog/Mixed-Signal ASIC's and Discrete Systems  |    manus    | 
| Phoenix, Arizona  85048    Skype: Contacts Only  |             | 
| Voice:(480)460-2350  Fax: Available upon request |  Brass Rat  | 
| E-mail Icon at http://www.analog-innovations.com |    1962     | 
              
I love to cook with wine.     Sometimes I even put it in the food.

It's quite likely you know Jim - it depends entirely on where on the Laffer curve the current rate actually is! "Revenue" refers to government revenue by the way, not GDP. Surely it is intuitively obvious to you that at some point decreasing taxes will in fact decrease

*government* revenue.

Wikipedia seems to think that most western economies are on the left side of the curve, i.e. raising taxes will raise government revenue. The question is more what is the optimum for the overall economy.

--

John Devereux

During Reagan's Presidency ??

...Jim Thompson

--
| James E.Thompson, CTO                            |    mens     | 
| Analog Innovations, Inc.                         |     et      | 
| Analog/Mixed-Signal ASIC's and Discrete Systems  |    manus    | 
| Phoenix, Arizona  85048    Skype: Contacts Only  |             | 
| Voice:(480)460-2350  Fax: Available upon request |  Brass Rat  | 
| E-mail Icon at http://www.analog-innovations.com |    1962     | 
              
I love to cook with wine.     Sometimes I even put it in the food.

Dimbulb just can't help himself. He's just *dim*.

A ment the period after the 1 $ = 4 DM did not hold any longer, but before the Euro came in. But even later, the German Dentral Bank with its major influence was able to maintain the value of the Euro much better then our Fed was able to do with the $.

Well, apparently you are quite familiar with it and would love to hear some of the German or other European contributors here to comment on it. I just want to add that your comments on the German VAT tax could be misleading without mentioning that they still have a hefty income tax as well. I don't think Americans would put up with that kind of tax load without another Boston Tea Party. But this may change as more and more people are getting used to getting freebies from the government. Obama's re-election maybe a signal in that direction.

Don't be silly. To conduct trade there has to be SOME medium of exchange and the US Dollar is currently favored because it was, and arguably still is, the most reliable and stable. Before that it was the Pound Sterling and some predict the Euro may be before mid century. It's already at 24%.

That, in no way, 'requires' people to 'loan' the U.S. money.

Ridiculous. Put simply, tyrants get embargos and, even then, they have to be, or do, something extraordinarily bad, such as Saddam Hussein who started two fracking wars killing millions of people.

As for the, so called, "Arab Spring," I must take from your 'example' that you're one of those who figure people in the Middle East ought to, and 'deserve' to, live under dictatorships. Say, why don't you invite Bashar al-Assad to come over and rule Denmark. He just might take you up on it, which would solve the Syrian problem, and then you could practice what you preach.

'Trade' is, by definition, a voluntary thing, otherwise it's theft, and there's nothing that 'requires' anyone do it with anyone else. And if the US doesn't want to 'sell' supplies and material to, oh say, Imperial Japan for their war effort in murdering half of China and conquering the entire East then that's our prerogative. The 'fair trade' recourse to such insult is to "well, then we won't trade with you either, asshole" and not raining bombs on Pearl Harbor or rolling German tanks over helpless countries like Denmark.

Now there's a surprise: the two largest powers that have been trying to kill the dollar and US influence for 60 years.

That's going to come as one hell of a surprise to all the foreign owned American 'icon' companies like Budweiser (Anheuser-Busch), Alka-Seltzer, "Good Humor" ice cream, 7-Eleven, Gerber, Firestone, John Hancock Life Insurance Company, Frigidaire, Chrysler, and Holiday Inn, just to list a few 'memorable' names.

That 'flood of money', as you call it, is otherwise called liquidity and if the US constricted the money supply you'd be bitching we were 'depressing' the world economy.

The real problem is that China will NOT let their currency go to par on a free market exchange.

You're talking about REPAY, which is the opposite of a default, the topic at hand. Before that they simply stop loaning good money after bad.

From 'who'? Especially since what I presume are your 'elite creditors' are the ones with the money to steal from.

Oh it's quite easy for people to default. It's called bankruptcy and, to coin a phrase, "it happens every day." Gee, where have I heard that before?

All debt is an 'asset', 'good as cash', including your home mortgage, assuming you have one, to the debt holder, discounted by risk and liquidity. For better or worse that's how ALL of it works.

I don't think you understand BASEL II. Basel II attempts to limit economic leverage rather than accounting leverage. It requires advanced banks to estimate the risk of their positions and allocate capital accordingly.

Your notion of a 'great thing' differs from mine and bankrupting a country for some ostensibly 'free' telecom equipment is ridiculous.

I don't want to live in any of those countries either and your example of who 'went bankrupt' is like pointing out that people crash cars everyday so, what the hell, go ahead and crash yours.

Why wait when you can have it now by moving there?

NO I can assure you that in 1979, when the UK incoming government reduced income tax from a maximum of 98% down to 60% tax revenues increased.

The best example of spending through a recession is exemplified by the militarisation of Germany in the 1930's.

Full employment, GNP increase in double figures while the rest of the world was cutting back and wallowing around in debt.

--
Mike Perkins 
Video Solutions Ltd 
www.videosolutions.ltd.uk

cite.

I am not clear what you are asking me here. You are implying that Reagan cut taxes and therefore government revenue increased? I don't know, did it? My impression is that reagan cut taxes and borrowed heavily to make up for it. Again wiki seems to support this but I don't know much about it really:

"..Federal revenue share of GDP fell from 19.6% in fiscal 1981 to 17.3% in 1984, before rising back to 18.4% by fiscal year 1989..."

"..the U.S. borrowed both domestically and abroad to cover the Federal budget deficits, raising the national debt from $997 billion to $2.85 trillion.[17] This led to the U.S. moving from the world's largest international creditor to the world's largest debtor nation.[18] Reagan described the new debt as the "greatest disappointment" of his presidency.[19].."

Seems like he actually *started* this whole national debt thing?

[...]

--

John Devereux

cite.

Yes, look at what happened then. The world was run by the "progressives", spending money they didn't have on do-nothing projects, while trying to appease those who wish them harm. Sound familiar?