Tuesday, May 19, 2009

Another misleading and misinformed article by some widely followed blogger



Some blog site named, "Zero Hedge" (should be named, Zero Brains) had a piece about rising deficits and how the government was going to have to "monetize the debt." (Buy its own bonds.)

This doesn't happen in a floating FX, non-convertible currency world simply because the gov't spends by crediting bank accounts, meaning the "money" is always there to buy the bonds and the sale of bonds is merely to manage reserves and support an interest rate.

Here's the article if you care to read it. Tax Revenues Tanking.

I posted the following comment on Zero Brains' blogsite:

The Federal Gov't spends by crediting bank accounts and that spending adds to the level of reserves in the banking system. Those reserves are then swapped for an interest bearing account known as a Treasury. There is no "monetizing of the deficit." Deficits add to the level of savings of the non-governmental sector as indicated in this basic accounting identity from macroeconomics:

Spvt = (Y + NFI - T + TI + TR) - C

Where:
Y=GDP
NFI=Net foreign income
T=Taxes collected
TI=Interest paid on the debt
TR=Transfer payments made by gov't
C=Consumption

As you can see from the above equation, the greater the deficit becomes (as a result of higher transfer payments, falling tax revenues and interest paid), the higher the level of private savings.

This is why private savings are currently at or near record levels! Gov't spending is the cause.

Your conclusions are completely misinformed.

6 comments:

googleheim said...

Mike

I jonesing for a show ...

I am going to email every single online biz radio station in the planet and tell them to hook Mike Norman up ...

that is if they can stand a Hans Solo renegade in an era of clones ...

You'know there are more than just one ...

And I bet there are a lot with more color than Biz Radio which is evidently white bread - they talk about China, but is there one single Chinese American on the station ?

( now I'll have to tune in and see if they try to co-opt this !!! )

keep on jammin'

Mike Norman said...

Great. If you succeed you are officially my agent and will get a percentage of my earnings. I will put that in writing!

The Joker said...

Mike, unfortunately, you know the biz radio stations will be reluctant to put you on as you tell the truth and back it up with facts.

I've noticed you've been on Fox Business Network a lot more lately. I guess they've finally seen the light and started listening to what you've been saying all along.

The following words are inscribed on the Main Building of my Alma Mater, The University of Texas at Austin "Ye Shall Know The Truth, and The Truth Shall Set You Free."

Mike, I guess the bulk of the business news media outlets assume the American people don't want to know the truth. Hence, the false belief systems.

googleheim said...

There is concern about the so-called printing of $12 trillion dollars.

Now, I can see one thing that differentiates reall printing of money and that of crediting banks with mega-deposits.

It goes back to the Bernanke interview on 60 minutes. He said " we are effectively printing money, but by another process".

We here know that is by crediting banks. Bernanke continued that inflation could be a concern, but that he will have the power to MOP up the extra cash since they are not physically printing and chopping trees down ( though they might have to if the swell through the banks is so successful that hit really hits the real economy hard whereby existing printed money is not enough to circulate - however that would mean no one is saving and the money is literally flowing in the streets and being stuffed in mattresses ).

So a mid term concern is How is Bernanke going to mop up the extra funds ? he will take it out of the system by forex swaps ? by buying up bonds ? etc ?

this technique will be the equivalent of shredding the money ?

let's discuss this in context to the evolution of the next 1 to 4 years.

Mike Norman said...

Joker,

You give them too much credit. What you say implies that they know the truth, which they don't. Moreover, their arrogance and elitism precludes them from ever learning the truth. Call me one time and I'll tell you a story of an encounter I had with a business anchor who shall remain nameless on this blog and how he consciously and purposely fought against the truth.

googleheim said...

what is the mechanism by which Bernanke will "mop" up the credits in the future to fight inflation ?

high interest rates with volcker behind him with a thresher ????

please comment - tell me something