The 112th Congress: Debt ceiling edition

[joecct]

Re: The 112th Congress: Debt ceiling edition

What happens when QE2 ends in june? Will they have to do a QE3?

The Wall Street Journal says something about that.

 

[Handyman]

Re: The 112th Congress: Debt ceiling edition

Monetary Policy 101:
MV = PQ

M = the money supply (generally M2)
V = the velocity of money (the multiplier effect).
P = average price (inflation/deflation)
Q = quantity of goods/services (GDP).

The Fed gets to control M. Generally speaking, V tends to remain fairly constant (though not always, as explained shortly). In a healthy economy, then, the fed will try to control P by using M while accounting for the natural changes in Q.
In other words, M should change at roughly the same rate as Q so as to leave P constant or only slightly increased, as its better for an economy to have minor inflation than any deflation.

What may have happened with the credit crisis was that V didn't necessarily remain constant; money stopped changing hands and the economic cogs ground to a halt. So now an increase in the money supply won't affect P or Q, as V has dropped so much that M has to increase just to keep that side of the equation stable.

As to how the Fed controls the money supply, it does so in a couple different ways:

It can raise or lower the overnight interest rate, which is what it charges banks who borrow money to satisfy their overnight reserve requirements. An increase in the rate will make banks borrow less cash and keep more of their own money in their vaults. Likewise a decrease in the rate will encourage more lending, getting more cash out on the market.

It can also change the money supply by buying and selling government bonds. When it wants M to increase, it buys up bonds to flood the market with cash (as well as lowering the effective yield of the government bonds, thereby discouraging them as an investment and forcing the money elsewhere). When it wants to reign in the money supply, it sells off bonds and hoards the cash.

That right there sums up everything I learned in an entire semester of Macroecon...you could have saved me a lot of money a couple years ago

 

[bronconick]

Re: The 112th Congress: Debt ceiling edition

In other news, Rand Paul is having one of his good days, and waging a lone symbolic battle to cause PATRIOT Act powers to possibly lapse for a day later this week

http://thehill.com/blogs/floor-action/senate/163087-patriot-act-powers-may-lapse-at-end-of-week

 

[Kepler]

Re: The 112th Congress: Debt ceiling edition

That right there sums up everything I learned in an entire semester of Macroecon...you could have saved me a lot of money a couple years ago

It's also the only explanation of macro I've ever read that didn't turn my brain to porridge.

 

[Kepler]

Re: The 112th Congress: Debt ceiling edition

In other news, Rand Paul is having one of his good days, and waging a lone symbolic battle to cause PATRIOT Act powers to possibly lapse for a day later this week

http://thehill.com/blogs/floor-action/senate/163087-patriot-act-powers-may-lapse-at-end-of-week

The Comments on that article are classic.

 

[unofan]

Re: The 112th Congress: Debt ceiling edition

That right there sums up everything I learned in an entire semester of Macroecon...you could have saved me a lot of money a couple years ago

That should've only been 1/2 a semester. I'm assuming you got some fiscal policy stuff too.

 

[Handyman]

Re: The 112th Congress: Debt ceiling edition

Yeah there was other stuff...but that would have been enough to pass the final (I got a 95% in the class so I aint upset)

 

[Foxton]

Re: The 112th Congress: Debt ceiling edition

Clearly small gov't means putting power into the hands of one person.
<div style="background-color:#000000;width:520px;"><div style="padding:4px;"><embed src="http://media.mtvnservices.com/mgid:cms:video:colbertnation.com:385702" width="512" height="288" type="application/x-shockwave-flash" allowFullScreen="true" allowScriptAccess="always" base="." flashVars=""></embed><p style="text-align:left;background-color:#FFFFFF;padding:4px;margin-top:4px;margin-bottom:0px;font-family:Arial, Helvetica, sans-serif;font-size:12px;"><b><a href="http://www.colbertnation.com/the-colbert-report-videos/385702/may-09-2011/the-word---autocratic-for-the-people">The Colbert Report</a></b><br/>Tags: <a href='http://www.colbertnation.com/full-episodes/'>Colbert Report Full Episodes</a>,<a href='http://www.indecisionforever.com/'>Political Humor & Satire Blog</a>,<a href='http://www.colbertnation.com/video'>Video Archive</a></p></div></div>

 

[Tiggsy]

Re: The 112th Congress: Debt ceiling edition

So we owe other countries an s-load of cashola... how much do they owe us? I'm surprised that the debt can't simply just cancel out.

Interesting point. But I'm pretty sure we don't loan. We hand out instead.

 

[ScoobyDoo]

Re: The 112th Congress: Debt ceiling edition

http://www.cbsnews.com/stories/2011/05/26/ap/congress/main20066423.shtml

The Senate has rejected a controversial House budget plan for turning Medicare into a voucher-like program for future beneficiaries.

Five Republicans joined every Democrat in killing the measure, which calls for transforming Medicare into a program in which future beneficiaries — people now 54 years old and younger — would be given a subsidy to purchase health insurance rather than have the government directly pay hospital and doctor bills.

 

[Kepler]

Re: The 112th Congress: Debt ceiling edition

So we owe other countries an s-load of cashola... how much do they owe us? I'm surprised that the debt can't simply just cancel out.

We owe 68% of our debt to our own citizens:

 

[unh_hockey]

Re: The 112th Congress: Debt ceiling edition

kepler, is most of that debt in US treasuries? if so, wouldn't that mean major shareholders like Goldmans, and other financial institutions technically are owed money by the US government?

 

[Kepler]

Re: The 112th Congress: Debt ceiling edition

kepler, is most of that debt in US treasuries? if so, wouldn't that mean major shareholders like Goldmans, and other financial institutions technically are owed money by the US government?

I found this on Wikipedia but I don't know if it answers your question.

 

[leswp1]

Re: The 112th Congress: Debt ceiling edition

My head hurts.

 

[joecct]

Re: The 112th Congress: Debt ceiling edition

My head hurts.

Health Care for headaches:

<iframe width="425" height="349" src="http://www.youtube.com/embed/IIlKiRPSNGA" frameborder="0" allowfullscreen></iframe>

 

[Kepler]

Re: The 112th Congress: Debt ceiling edition

My head hurts.

Mine, too. My main question is whether "Notes" refers to just T-Notes or also Bank Notes. I find it hard to believe there is only $2.8T in bank notes floating around. The table says "Securities," so that makes me think it's just T-Notes. Since the difference in securities in the two tables is about $1.9T and the national debt is about $14.3T, that would mean the total liabilities of the government other than securities would be about $12.4T, most of which (I assume) would be bank notes.

According to this, M-2 was $3.3T in 1991, so that might actually be about right.

Edit: according to this, M-2 is only about $8.9T, so there's still over $5T unaccounted for.

 

[leswp1]

Re: The 112th Congress: Debt ceiling edition

Health Care for headaches:

<iframe width="425" height="349" src="http://www.youtube.com/embed/IIlKiRPSNGA" frameborder="0" allowfullscreen></iframe>

I love that. Hadn't seen it in awhile

 

[bronconick]

Re: The 112th Congress: Debt ceiling edition

Mitch McConnell

"To get my vote (on the debt ceiling), for me, it's going to take short term [cuts, via spending caps]... Both medium and long-term, entitlements.," McConnell said. "Medicare will be part of the solution."

To clarify, I asked "f [the Biden group] comes up with big cuts, trillions of dollars worth of cuts, but without substantially addressing Medicare, it won't get your vote?"

"Correct," McConnell said.

That's not a filibuster threat, but it is a clear indication of what the GOP is demanding in private deliberations. McConnell repeatedly cited Bill Clinton and House Minority Whip Steny Hoyer, who this week acknowledged -- as have many Democrats -- that resolving the long-term deficit problem will require addressing Medicare. Hoyer in particular said that Medicare will be on the table in current debt negotiations, and with revenues off the table -- that means they're talking politically dangerous cuts. And for Republicans, that's the point.

When your first plan doesn't succeed, double down and try again.

 

[Kepler]

Re: The 112th Congress: Debt ceiling edition

When your first plan doesn't succeed, double down and try again.

That would be laudable, except revenues are off the table, which makes it craven. "We will hold the country hostage to ram through our agenda which we've already been doing for 30 years and which doesn't work." Bravo.

I think they realize that if we raise taxes and the economy recovers, that's it for trickle down until the next generation forgets. They literally can't back down because it will demonstrate they've been bluffing ever since Reagan.

 

[Bakunin]

Re: The 112th Congress: Debt ceiling edition

Edit: according to this, M-2 is only about $8.9T, so there's still over $5T unaccounted for.

Those numbers sound like publicly-held debt and foreign/investor-held debt respectively.

And of course, most of that second number is held by China.

Given the unlikelihood of us getting our fiscal house in order any time soon, no wonder they put lead in our toys.