THE Most Important Chart of the CENTURY

[Rajiv]

THE Most Important Chart of the CENTURY

[blazespinnaker]

Re: THE Most Important Chart of the CENTURY

OK we could use that unlimited free supply of energy ANY DAY NOW..

[snakela]

Re: THE Most Important Chart of the CENTURY

OK we could use that unlimited free supply of energy ANY DAY NOW..

Easy! Just put a generator on the spinning corpses of the nations founders.

[Starving Steve]

Re: THE Most Important Chart of the CENTURY

Maybe the Republicans and their Arthur Laffer should have been thinking about the following two issues, instead of flag-waving and celebrating "the Reagan-recovery":

1.) With socialized-medicine abroad, businesses outside America were more competitive than American businesses because foreign businesses had lower costs per worker than American businesses;

2.) America's population was aging, so more money was naturally going to be spent on medical care, and each worker in the labour force was going to produce less than before and require more medical care.

But no-one could talk to the Republicans; the supply-siders were "the know-it-alls".:rolleyes:

We did witness a boom during the Reagan-Bush years, but part of that boom was due to the young age of the labour force in America, relative to other countries, especially Japan.

[ltullos]

Re: THE Most Important Chart of the CENTURY

If this were an airplane, I think we have stalled it and gone into the spin … with full power. Only pertinent question at this point is how much altitude we have left. I don’t think it going to matter which seat you have, unless you’re a lucky one with a parachute. I would like to see much more history in this chart though to know how much stress this bird has previously survived.

[Adeptus]

Re: THE Most Important Chart of the CENTURY

Originally Posted by blazespinnaker
OK we could use that unlimited free supply of energy ANY DAY NOW..

Easy! Just put a generator on the spinning corpses of the nations founders.

Now that was funny!

[Starving Steve]

Re: THE Most Important Chart of the CENTURY

In some ways, I am glad to see this day of reckoning in America. No matter how much the govn't spends on stimulus, there can be very little growth for the obvious reasons: the workers in America are aging and facing retirement, and also American business is now saddled with the costs of private for-profit health insurance. So American business can not compete on the world stage because all other industrial countries have socialized-medicine.

For-profit private healthcare works wonders when the population is young, but not when the population of America starts to become old. Hence, we witness the reckoning now.

I remember the shouting at the Republican National Convention in 1984:
"U.S.A, U.S.A, U.S.A !" You couldn't tell the shouters, the supply-siders, that there would be a day-of-reckoning in America for this. You couldn't tell them about socialized-medicine. Nor could you tell them that workers would get old, nor that deficits did, in fact, count in the end. You could not tell them that there would be natural limits to economic growth and that America could not count on growth to bail-out its deficits forever.

When I had a coin shop in Colorado Springs, I wrote 25 letters in four years to The Colo. Spgs. Gazette Telegraph, all of them published in the opinion-editorials page of that newspaper. And all of those letters were like writing to the Republican Party in America. It was as if I were writing to a brick wall. The supply-siders were the "know-it-alls".:rolleyes:

[reggie]

Re: THE Most Important Chart of the CENTURY

Maybe the Republicans and their Arthur Laffer should have been thinking about the following two issues, instead of flag-waving and celebrating "the Reagan-recovery":

1.) With socialized-medicine abroad, businesses outside America were more competitive than American businesses because foreign businesses had lower costs per worker than American businesses;

2.) America's population was aging, so more money was naturally going to be spent on medical care, and each worker in the labour force was going to produce less than before and require more medical care.

But no-one could talk to the Republicans; the supply-siders were "the know-it-alls".:rolleyes:

We did witness a boom during the Reagan-Bush years, but part of that boom was due to the young age of the labour force in America, relative to other countries, especially Japan.

I don't think playing the political dialectic card gets us anywhere, because one can also easily show causality by pointing to Clinton's mid-90's GATT treaty. I think I noticed Goldsmith's Charlie Rose interview posted in these forums, that's a good refresher for what has been done to the public by the left side of this political dialectic.

Also, couldn't we have drawn this chart on Christmas Day, 1913?

[bpr]

Re: THE Most Important Chart of the CENTURY

Sorry for taking this one far afield, but I came across this in the comments section on Rajiv's post:

Regarding the inability to service debt, MMT would argue that the US doesn't actually have to issue debt, but does so due to a hangover from the gold standard days. These blog posts (among many others) from Bill Mitchell are well worth reading if you're interested:
http://bilbo.economicoutlook.net/blog/?p=332
http://bilbo.economicoutlook.net/blog/?p=352
http://bilbo.economicoutlook.net/blog/?p=381

Is anyone here familiar with the work of this Bill Mitchell or Modern Monetary Theory? I've spent the last few days reading his blog and can't figure out if he's off his rocker or if I am.

It's most likely the latter, but when somebody's screaming "Everybody else is wrong!" I proceed with caution.

This appears to be an alternative explanation of the fiat money system we have to the more traditional model of fiat money borne out of debt creation:

Mainstream economics textbooks think that the fractional reserve requirements provide the capacity through which the private banks can create money. The whole myth about the money multiplier is embedded in this erroneous conceptualisation of banking operations. The FRNY educational material even perpetuates this myth. They say:

If the reserve requirement is 10%, for example, a bank that receives a $100 deposit may lend out $90 of that deposit. If the borrower then writes a check to someone who deposits the $90, the bank receiving that deposit can lend out $81. As the process continues, the banking system can expand the initial deposit of $100 into a maximum of $1,000 of money ($100+$90+81+$72.90+…=$1,000). In contrast, with a 20% reserve requirement, the banking system would be able to expand the initial $100 deposit into a maximum of $500 ($100+$80+$64+$51.20+…=$500). Thus, higher reserve requirements should result in reduced money creation and, in turn, in reduced economic activity.

This is clearer than Mankiw writes but just as wrong if it is trying to represent the way the banking system actually operates. And the FRNY knows it. If you read on they qualify to the point of rendering the last paragraph irrelevant.

After some minor technical points about which deposits count to the requirements, they say this:

Furthermore, the Federal Reserve operates in a way that permits banks to acquire the reserves they need to meet their requirements from the money market, so long as they are willing to pay the prevailing price (the federal funds rate) for borrowed reserves. Consequently, reserve requirements currently play a relatively limited role in money creation in the United States.

Read: no role.

As we have discussed many times banks seek to attract credit-worthy customers to which they can loan funds to and thereby make profit. What constitutes credit-worthiness varies over the business cycle and so lending standards become more lax at boom times as banks chase market share (this is one of Minsky’s drivers).

These loans are made independent of the banks’ reserve positions. Depending on the way the central bank accounts for commercial bank reserves, the latter will then seek funds to ensure they have the required reserves in the relevant accounting period. They can borrow from each other in the interbank market but if the system overall is short of reserves these “horizontal” transactions will not add the required reserves. In these cases, the bank will sell bonds back to the central bank or borrow outright through the device called the “discount window”. There is typically a penalty for using this source of funds as noted in the qualification above by the FRNY.

At the individual bank level, certainly the “price of reserves” will play some role in the credit department’s decision to loan funds. But the reserve position per se will not matter. So as long as the margin between the return on the loan and the rate they would have to borrow from the central bank through the discount window is sufficient, the bank will lend.

So the idea that reserve balances are required initially to “finance” bank balance sheet expansion via rising excess reserves is inapplicable. A bank’s ability to expand its balance sheet is not constrained by the quantity of reserves it holds or any fractional reserve requirements. The bank expands its balance sheet by lending. Loans create deposits which are then backed by reserves after the fact. The process of extending loans (credit) which creates new bank liabilities is unrelated to the reserve position of the bank.

Source

So, if this is right, then the need for bank reserves is a myth. That would seem to be in line with Bernanke's thinking as discussed here.

Forget for a moment the original poster's comment that the US doesn't need to issue debt — I'm not there yet — just trying to get a feel for the legitimacy of these claims, which seem to me to be a plausible counter-explanation of our current monetary system.

[ThePythonicCow]

Re: THE Most Important Chart of the CENTURY

So, if this is right, then the need for bank reserves is a myth.

I tried reading the material at the three links you provided, bpr, but gave up. As far as I can tell, he is arrogantly dismissing by fiat all contrary evidence and then declaring victory by default for his simplified model of the economic world. I sure hope he had nothing of value to say, for if he did, I'm going to miss out on it.

[icm63]

Re: THE Most Important Chart of the CENTURY

Every one will yield will yield to the BOND MARKET BEAST..

http://www.itulip.com/forums/showpos...7&postcount=27

[bpr]

Re: THE Most Important Chart of the CENTURY

I tried reading the material at the three links you provided, bpr, but gave up. As far as I can tell, he is arrogantly dismissing by fiat all contrary evidence and then declaring victory by default for his simplified model of the economic world. I sure hope he had nothing of value to say, for if he did, I'm going to miss out on it.

Thanks for having a look. As far as I can see, it's a very have your cake and eat it too rewriting of our monetary system.

[ThePythonicCow]

Re: THE Most Important Chart of the CENTURY

I tried reading the material at the three links you provided, bpr, but gave up. As far as I can tell, he is arrogantly dismissing by fiat all contrary evidence and then declaring victory by default for his simplified model of the economic world. I sure hope he had nothing of value to say, for if he did, I'm going to miss out on it.

A few months after I wrote the above, I happened onto Modern Monetary Theory (MMT) and the work of Bill Mitchell again, thanks to a posting by Rajiv of something by Eric Tymoigne, a recent student of MMT. This second time around, MMT made more sense to me, much more sense. Thanks to bpr for noticing the inconsistency of my two reactions to MMT. Amusing.