Where is the $ coming from?

[buster]

http://krugman.blogs.nytimes.com/2009/06/06/wheres-the-money-coming-from/

Quote:
The huge borrowing by major governments, the U.S. government in particular, has confused many people — and not just Niall Ferguson. What I hear again and again is either the assertion that all this borrowing must drive up interest rates, or worries that the Chinese won’t be willing to lend us the money.

We know as a matter of principle that these concerns are misplaced: if there were a shortage of savings, the economy wouldn’t be depressed. Indeed, one way to think about our current problem is that the world as a whole wants to save more than it’s willing to invest.

But it’s always nice to have some real-world data illustrating a principle. From Brad Setser, private and public borrowing in America, as a percentage of GDP:

 

[daves87rs]

I don't want to know....

 

[StevieC]

Isn't your backside

sore already from bending over?

 

[John_K]

My favorite is that one of the "stimulus" programs gives a tax credit to home buyers...except that all the borrowing by the feds to pay for the stimulus is pushing mortgage interest rates up, meaning you will pay thousands more for your house that you're getting a tax break on......incredible.

John

 

[Gary Allan]

Quote:
The huge borrowing by major governments, the U.S. government in particular, has confused many people — and not just Niall Ferguson. What I hear again and again is either the assertion that all this borrowing must drive up interest rates, or worries that the Chinese won’t be willing to lend us the money.

We know as a matter of principle that these concerns are misplaced: if there were a shortage of savings, the economy wouldn’t be depressed. Indeed, one way to think about our current problem is that the world as a whole wants to save more than it’s willing to invest.

But it’s always nice to have some real-world data illustrating a principle. From Brad Setser, private and public borrowing in America, as a percentage of GDP:



I can catch lightning in a bottle, but I can't figure out a word that you just said.

 

[jmac]

I don't get it, is this Krugman just a complete moron or what?

Quote:
if there were a shortage of savings, the economy wouldn’t be depressed. Indeed, one way to think about our current problem is that the world as a whole wants to save more than it’s willing to invest.


Is this for real? Did he mean something else and write this instead? Am I missing something or not understanding something or does anyone actually believe this? Have we stepped into the Twilight Zone?

 

[ToyotaNSaturn]

Krugman has rarely has opinions that reflect reality. It's a safe bet to go with the "complete moron" option.

 

[ksJoe]

Google the terms: fed buy treasuries print money

Essentially what is happening, is the Fed is "printing money" by buying US treasury notes. They are paying with those treasuries with dollars that come from nowhere. Since the dollar isn't tied to the gold standard, they just create dollars from nowhere.

This is typically not done by responsible countries (or more specifically not done on an ongoing basis) because it is typically very inflationary. If more dollars appear out of nowhere, eventually there must be inflation.

But in this case - currently - the pressures are closer to deflationary. The recession is causing big spending cutbacks which putting pressure on prices. So very short term, it is probably not inflationary.

Further out (months, a year or two...?) inflationary forces will appear again. The fed is promising to act when those pressures appear. Part of that action will probably include selling those treasuries bought with imaginary dollars. Of course they'll also do the standard stuff too (raise interest rates).

 

[Gary Allan]

Originally Posted By: jmac
I don't get it, is this Krugman just a complete moron or what?

Quote:
if there were a shortage of savings, the economy wouldn’t be depressed. Indeed, one way to think about our current problem is that the world as a whole wants to save more than it’s willing to invest.


Is this for real? Did he mean something else and write this instead? Am I missing something or not understanding something or does anyone actually believe this? Have we stepped into the Twilight Zone?


It sounds more philosophical than it does materially relevant.

Someone who knows about such matters:

Q: Did he really say anything?
Q: Even if he did (which I doubt), was any of it worth figuring out?

 

[jmac]

I think he meant to say spending, like in KsJoe's post, but he said investing. If he meant spending he should have said spending, Spending does not always equal investing.

Fundamental economics rule number one, savings (in a sane world) is the backbone of investing, as most savings does not mean keeping it tucked away in mason jars in the back yard with the fig preserves.

 

[javacontour]

Except for the past few decades where borrowing has been the backbone of investing.

There has been a sort of financial 1984 where going into debt is investing and other such insane ideas. (Ignorance is bliss)

The solution to the problem is not more debt. Yet that's the tool being applied, borrow money to spend because the government is a better decider of where the dollars need to go than is the consumer.

Riiiiiight.

 

[Gary Allan]

Well, aside from a bridge to nowhere, I can see some forms of public debt being investments. The federal highway network was one such investment. The oddity of the federal highway network was that it was defense project that actually delivered on the charade story that it was promoted under. It did allow massive development where it was otherwise not possible. The key is spending it on something durable that has high utility. Most bridges and highways manage that.

Now they are a beeatch to pay for if you've blown all of your money on other stuff and it's time to rebuild them.

 

[oilyriser]

Originally Posted By: jmac
I don't get it, is this Krugman just a complete moron or what?

Quote:
if there were a shortage of savings, the economy wouldn’t be depressed. Indeed, one way to think about our current problem is that the world as a whole wants to save more than it’s willing to invest.


Is this for real? Did he mean something else and write this instead? Am I missing something or not understanding something or does anyone actually believe this? Have we stepped into the Twilight Zone?


Sounds like standard Keynesian Economics, which says that savings (building wealth) is bad, and spending (losing wealth) is good.

 

[Tempest]

Saving rate is up:
http://www.foxbusiness.com/story/personal-finance/financial-planning/americans-savers--oh/
So the more money the Gov. puts into the economy, the more people will save it (or pay off debt) and it will do no good (by the standard of the Keynesians). BUT, we will have a massive debt and inflation for the exercise.

What he his is saying is that if people won't go into debt on their own to help the economy it just fine for the government to go into debt for them...which is exactly what is happening.

 

[oilyriser]

If house prices were allowed to fall, more folks would buy homes, and then cars, appliances, renovations, etc etc...

 

[Gary Allan]

Quote:
it just fine for the government to go into debt for them...which is exactly what is happening.


You didn't mind it over two eight year bouts of massive public debt increases, what's your problem now?