When the government owes itself $US1.6 trillion

I did some research today on the outstanding US public debt – not because I think it is particularly important but because a journalist asked me yesterday during an interview – how much of the total US Treasury Debt is held by the US government – I said off the top of my head about 42 per cent which was a quick calculation based on work I did about 12 months ago and a rapid adding up off what I remembered from the monthly reports since then with a quick division thrown in. It turns out after I have updated the databases I keep that my “guesstimate” was not misleading (as at March 2011). The journalist then said – “so lets get this straight, the US government owes itself money equivalent to 42 per cent of its total outstanding liabilities?” Answer: yes. He then responded: “to fix the debt problem why wouldn’t they just write it off?”. Answer: I don’t see a US public debt problem. But because you do, then the answer is that for the most part they could just write it off as long as their were some additional legislative changes (for example, they would have to finance the operations of the US Federal Reserve in a different manner). So who owns the US debt?
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Posted in Economics | 11 Comments

S&P decision is irrelevant

In the last few days I have read more misinformation and downright lies from financial and economic commentators in the media than I have for the last year. The decision by the irrelevant S&P to get some attention for their corporate profit-making activities by downgrading US government debt has sparked a frenzy of nonsensical “analysis” which is as ridiculous as was the S&P decision. The fact is that the S&P decision is irrelevant as long as the US government makes it so. The danger is that the Government will think there is something to be addressed and the US economy will suffer as a result. As long as the US government realises who calls the shots the S&P decision will be irrelevant.
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Posted in Economics | 26 Comments

Saturday Quiz – August 6, 2011 – answers and discussion

Here are the answers with discussion for yesterday’s quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of modern monetary theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.
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Posted in Economics | 3 Comments

Saturday Quiz – August 6, 2011

Welcome to the billy blog Saturday quiz. The quiz tests whether you have been paying attention over the last seven days. See how you go with the following six questions. Your results are only known to you and no records are retained.
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A totally confected crisis

Last night we were watching the ABC news on TV and there was a story about American airports not being able to afford to pay security staff because the federal body who pay the bills had run out of money. I have been reading regional newspapers in the US which report on things like street lights being rationed not on environmental grounds but because the local authorities are starved of funds. Police beats are being trashed as rapes rise in the darkened, unpatrolled streets. Schools are being closed. People will die this coming northern winter because the governments have cut heating subsidies to the poor. Workers who saved all their lives then became unemployed in 2008 are still unemployed and have exhausted their life savings and are staring at poverty. And all of this is because the conservatives and the dullard progressives who have fallen into line lock-step have convinced us that our governments – which issue the currency we use – have run out of money. The people who are being most damaged by the fiscal austerity are the front-line troops in the conservative army attacking governments. It doesn’t make sense at all. For all the human achievements we are really a very dull lot. Governments have all the capacity to maintain adequate levels of spending and employment growth to allow the private sector to sort out their debt issues. This is a totally confected crisis which doesn’t mean that it isn’t real nor incredibly damaging.
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Posted in Economics | 21 Comments

Day by day the evidence mounts

I was looking at yields today and you cannot help noticing that bond markets are become more attracted to government debt each day. So much for the arguments we have been hearing ad nauseum over the last few years that governments were about to feel the cold hand of the markets who would punish them by dumping their debt unless they imposed harsh austerity. The problem is that the attraction of government debt does not signify that markets are rewarding governments for their fiscal austerity efforts. In fact, it is exactly the opposite. The markets are realising that austerity is now undermining economic growth and the claims by politicians and economists that we would enjoy a “fiscal contraction expansion” if only the government got off the backs of the private sector are now being revealed as lies. The world economy is tanking. Day by day the evidence mounts. The safest place to be when the economy heads south is in cash or government bonds.
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Posted in Economics | 11 Comments

Australian retail sector in recession

Everywhere I walked in Melbourne last Saturday there were sales. Signs emblazoned all over the front of shops advertising 30 per cent, 50 per cent and 70 per cent discounts. The only problem is that I see those signs all the time now whenever I go retail precincts. The annual sale concept is now a continuous effort to rid stores of excess stock as consumers go on strike. So what is going on? The Australian Bureau of Statistics (ABS) released the June 2011 – Retail Trade data today and in showing that retail sales have contracted for the second consecutive month they confirmed what we already knew from the empty shops and sale signs – the retail sector is now in recession and things are getting worse.
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Posted in Economics | 23 Comments

Sometimes compromise is the worst thing

I guess I had to write something about the “compromise” aka cave-in yesterday in the US capital. You can only conclude that the US President wanted this agenda and needed a smokescreen (mad Republicans) to put it in place. There is a lot of evidence that Obama wanted to attack pension and medical entitlements. Now he can. Not for long though – he is a one-term president in the making. When you put all the elements together sometimes compromise is the worst thing.
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Posted in Economics | 25 Comments

There is no federal public debt problem in the US

I would have thought the role of a Professor of Journalism at a university would be to teach students how to write copy and to research issues in the field of journalism. I would not assume that such a person would claim expertise in macroeconomics and start pontificating about national economic policy. But I was wrong – again. In this article (July 31, 2011) – American dream comes with a heavy cost – which was published in the Melbourne Age (but previously the UK Guardian) one Rosalind Coward proves how little she knows about economics. Contrary to the sway of media opinion from these “tin pot” experts – there is no federal public debt problem in the US.
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Posted in Economics | 28 Comments

Saturday Quiz – July 30, 2011 – answers and discussion

Here are the answers with discussion for yesterday’s quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of modern monetary theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.
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Posted in Saturday quiz | 8 Comments