gut;1504540 wrote:You're playing semantics. Technically we can't be insolvent because we can just print money. But harping on it makes you look completely ignorant to the challenges and risks that the statement alludes to. And in typical liberal fashion you dodge the real issue. You've bought into the free lunch "new paradigm", and it's ridiculous because it's a bedrock economic principle that there is no free lunch. You simply choose not to see all the structural stresses building in the economy and how it is hurting growth. And it's only highlighted by the horribly misguided faith you have in some obscure and extraordinary policy responses that we just flip a swtich on to fix it when the shit hits the fan.
But you're not worth debating. You don't even understand the fed funds rate and how it works. You're incapable of debating secondary, tertiary and long-term effects when you can't even grasp the fundamentals.
It is important to harp on it because you have QuakerOats and the entire conservative movement saying that we're broke, insolvent, on the path to fiscal ruin. All of those phrases are inapplicable. The issue is....off into the future we have large commitments of real resources to the public purpose...i.e. real resources devoted to the medical and health needs of seniors and to retirees who aren't working/being productive any more....is this desirable in a real sense? That is the debate.
It is not a claim of a free lunch as long as there is real production to be had. If there is no real production to be gained then you are right. As of right now there's lots of real production to be had.
We're not anywhere close to the shit hitting the fan based on what you probably consider the shit hitting the fan. In fact we're already there in a real sense....losing billions of dollars of wealth and production day after day and month after month letting our economy run below potential. All we'd need to do is a sufficiently large tax cut w/o offsetting spending cuts. You're a conservative and you don't trust government crediting of bank accounts??? 10% cut in the marginal tax rate for everyone (not the most efficient cus of saving by higher earners but let's just do it for arguments sake because this is the standard conservative favorite). The real waste is in letting all of that output and wealth that we could have fail to materialize; letting entrepreneurs face uphill battles that are unnecessary.
It is you who don't apparently understand the Fed Funds Rate works in our fiat monetary system. Consider the following:
Suppose Congress buys a Fighter Plane from Boeing. Treasury spends$1 billion by crediting Wells Fargo's reserve account at the San Francisco FED by $1 billion. and then makes a call on a TTL account a JP morgan Chase in the amount by $1 billion because the government is running a balanced budget. In this scenario you have a net reserve add and a reserve drain. There are no excess reserves in the banking system.
Spending by the government adds reserves to the banking system. Taxing and Bond Sales by the Government Drain Reserves from the banking system. When the government deficit spends, that is they spend more than they tax....if there is no bond sale...there will be a credit to a member bank's account without a corresponding debit elsewhere to match the resulting in excess reserves in the banking system. In this event...supposing that there is no interest rate paid on reserves...
the overnight rate is bid down to zero. The Interbank Competition cannot eliminate the excess reserves in the banking system no matter how hard they try.
That is why, if the FED is going to have a target rate and we're going to have a budget deficit...that is spend more than we tax and therefore create more reserves than we drain with calls on TTL accounts, you need a bond issuance by the treasury because the bond sale has the same effect of a call on a TTL account by draining reserves in the same amount that were credited by the deficit spending...and thus not putting downward pressure on the overnight rate and allowing the FED to hit its target rate.
This is how it actually works in our monetary system. I challenge you to provide evidence that it does not. Why would the rate not go to zero in the event that there are excess reserves and the FED/Tsy do nothing to drain them since the FED isn't trying to hit an interest rate target?
