Mainstream economists grasping reality (just barely)

[Jovial Monk]

Japan shot itself in the foot by letting banks carry their non-performing loans forward forever. So hopefully US companies will write of bad debts quickly. On the consumer side if they just save and retire debt how will any rebound happen to sales & manufacturing? The US Treasury is empty thanks to the brain damaged Bush. Taxes will have to be raised (here too, to fix Tip's $200Bn+ cash deficit due to the structural budget deficit. Exports will need to be boosted, somehow. Pity they can't create an Empire to create a source of raw materials and a market for finished goods

I guess some great new thing is going to have to be created to boost the economy longer term. Here the NBN and the new industries it will create will do it. If the fast breeded reactors come out of proving then a huge program of replacing coal fired power stations with nuclear could do it.

[Lefteee]

I actually think that taxes might be higher in the future, or they might be lower, or they might be the same.

The longer and deeper I dig, the more I think that the chartalists/modern moneterists are correct. We have lived under a chartalist economic system for nigh on 40 years but it continues to be dressed up and presented to us as a gold standard economy. Even though the gold standard is long ago history.

When we check the sectoral balances of the economy, it clearly shows that whenever the federal budget is in surplus, the private sector - in aggregate - is in deficit, running down savings, liquidating assets and racking up private debt. And that the federal budget surplus equals the private sector deficit, barring the current account balance, which itself is almost permanently in deficit and has been for 50 years, more or less.

Everyone continues to argue that sovereign government must pre-finance their spending - in fact everyone in the Australian economy must get $AUSD from somebody else first by earning, borrowing, taxing, stealing etc - yet no one seems willing to identify this original someone or something that it must be sourced from. I guess the concept of a fiat monetary system whereby the currency is no longer a representation of a real, physical thing - gold - but is a representation only of itself is a somewhat way out concept.

The $AUSD - like most other modern currencies - is no longer just another name for a particular weight of gold. It is an abstract concept, just like points scored in a game of ten-pin bowls. Does the bowling alley have to close when 10 000 points have been scored, because there are no more points left? Because the points have run out? It is impossible for a player to write down 10 001 points on a scorecard because the alley's stock of points is empty? Do the points have to be re-collected at the door at closing time so that there are enough points for tomorrow nights game?

All these questions are of course, completely irrelivent to the bowling alley. It will not close down because a team of crackerjack bowlers have scored all available points. The points exist only as an abstract concept and as otherwise worthless tokens (scorecards). There is no physical limit on the number that can be in existence (although there are practical limits) because no one has to acquire gold or any other physical substance in order to issue more tokens in representation of that amount of physical substance.

I think it will be difficult to rid ourselves of the scourge of neo-liberalism as long as we continue to agree with them that - basically - Nixon did not dismantle bretton woods in 1971, that Keating did not float the dollar in 1983 (removing the last of the fixed exchange rates which forced the RBA to use monetary policy to defend an agreed exchange rate parity) meaning that the fiat monetary system we live under is in fact, exactly the same as the gold standard-commodity based money/ fixed exchange rate systems that it replaced as a matter of historical fact.

But that's just me. Maybe I'll change my mind again one day

[Jovial Monk]

Had a thought last night. I reckon the US cannot afford to keep the Farm Bills--HUGE farm subsidies that don't even go to farmers who could do with some help--going into the future. If Obama nixes such a Bill in future there will be hell to pay. The agribusiness sector would be in for a massive reorganisation. Our farmers did it, the US ones can do it.

Edit:

The US probably can't continue to lock out imports, like our dairy and sugar. If she is so far down, they have to make their economy much more efficient.

[Lefteee]

Ross Gittins on why public debt is not the hideous monster that the public have been convinced it is by decades of neo-liberalism.

http://www.smh.com.au/business/no-infra ... -hps3.html

Get this straight: if you think we should be spending a lot more on economic infrastructure, you can't be chicken-hearted about government debt.

Similarly, if you think debt-free is the only acceptable way for governments to be, resign yourself to living in an economy characterised by bottlenecks at ports, inadequate rail and road systems, rising congestion on urban roads, inadequate public transport and the threat of urban water shortages.

It's not good enough for big business to be demanding hugely increased spending on infrastructure while looking the other way as its Coalition mates do all in their power to put the frighteners on the punters over government deficits and debt.

I agree with the the outlook here although debt is not needed to - and does not - actually "finance" this spending. Gittens correctly identifies this - intentioanally or not - when he says "deficits and debt", meaning that they are not the same thing even if they are an exact $ for $ match.The problem is that the public's thinking is so confused and has been so poisoned by decades of neo-liberal fear mongering that they want more and better public goods but less and less government spending at the same time. You just cannot have both.