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US GDP "growth": $7 borrowed to get $1 in growth
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Clinically Insane
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Jun 2, 2011, 12:39 PM
 
Awesome analysis of how the US "manipulated" GDP to make everyone believe that things are not as bad.

The Federal government borrowed and spent $5.1 trillion over the past four years to generate a cumulative $700 billion increase in the nation's GDP. That means we've borrowed and spent $7.28 for every $1 of nominal "growth" in GDP.
Guest Post: Can We Please Stop Pretending the GDP Is "Growing"? | zero hedge

The analysis is spot on, it's simple math.
W/o all the debt to "fuel" GDP and the recovery, US GDP would be shrinking like crazy, making this recession as bad or worse than the 1930s.

The US is broke, everyone knows it, but we're still trying to keep up with the Jonses.

-t
     
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Jun 2, 2011, 01:00 PM
 
I think the author just show that conservatives are liars when they say "we don't have a revenue problem". Although the author was confused on many levels. Maybe the author should distinguish between nominal and real GDP.

It's just that we have a 'revenue problem'.
Bush Tax Cuts == Job Killer
June 2001: 132,047,000 employed
June 2003: 129,839,000 employed
2.21 million jobs were LOST after 2 years of Bush Tax Cuts.
     
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Jun 2, 2011, 01:01 PM
 
I can't figure out if you're a bigger fool or a bigger troll, hyteckit. turtle points out that borrowing heavily has only yielded anemic economic growth, and yet you crawl out from the woodwork with an empty, specious argument about insufficient taxation. What's the truth here? Are you just mentally deficient?

Can you tell me why you think we have a revenue problem rather than a spending problem? Could you offer a single argument in support of such stupidity? The federal government takes in a tremendous amount of tax money, but over the last eleven years federal spending has ballooned by around an extra $1.5 Trillion. Bush caused huge problems by not funding his wars and moronic Medicare expansion, and then Obama compounded the problem with his last two years of spending overdrive that has become the baseline for future spending. What kind of doofus can look at the numbers and claim that we have a revenue problem instead of a massive deficit spending problem?
( Last edited by Big Mac; Jun 2, 2011 at 01:21 PM. )

"The natural progress of things is for liberty to yield and government to gain ground." TJ
     
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Jun 2, 2011, 01:06 PM
 
What I don't understand is that every x weeks/days we need posts reaffirming things we basically all agree about.
     
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Jun 2, 2011, 01:10 PM
 
Originally Posted by besson3c View Post
What I don't understand is that every x weeks/days we need posts reaffirming things we basically all agree about.
That hyteckit is a troll ?

If that's not what you meant, please post links to other discussions of how GDP in the US really didn't grow in the last 5 years. I missed that thread.

I have the feeling that you just knee-jerked, because you really have too little economic understanding to see the differences between the different threads. For you, it's all the same.

-t
     
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Jun 2, 2011, 01:27 PM
 
I understand the differences, but at the end of the day, we're spending more than we're making, many of these reports are just different ways of saying essentially the same thing.

But whatever, carry on
     
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Jun 2, 2011, 01:33 PM
 
Originally Posted by besson3c View Post
I understand the differences, but at the end of the day, we're spending more than we're making, many of these reports are just different ways of saying essentially the same thing.

But whatever, carry on
Uhm, yeah, no, this thread is NOT about Budget deficits. Thanks for playing though

-t
     
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Jun 2, 2011, 01:35 PM
 
Originally Posted by turtle777 View Post
Uhm, yeah, no, this thread is NOT about Budget deficits. Thanks for playing though

-t

No problem, I'm just trying to help this thread thrive, you should be thanking me!
     
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Jun 2, 2011, 01:36 PM
 
Originally Posted by turtle777 View Post
W/o all the debt to "fuel" GDP and the recovery, US GDP would be shrinking like crazy, making this recession as bad or worse than the 1930s.
You know, I've been thinking about this. I'm not sure the US isn't still technically in the 1930s depression and that the whole period between then and now has been artificially masked.

The US has had it - game over. At least until money is replaced by "carbons" and everyone can start fresh.
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Jun 2, 2011, 01:36 PM
 
Originally Posted by Big Mac View Post
I can't figure out if you're a bigger fool or a bigger troll, hyteckit. turtle points out that borrowing heavily has only yielded anemic economic growth, and yet you crawl out from the woodwork with an empty, specious argument about insufficient taxation. What's the truth here? Are you just mentally deficient?

Can you tell me why you think we have a revenue problem rather than a spending problem? Could you offer a single argument in support of such stupidity? The federal government takes in a tremendous amount of tax money, but over the last eleven years federal spending has ballooned by around an extra $1.5 Trillion. Bush caused huge problems by not funding his wars and moronic Medicare expansion, and then Obama compounded the problem with his last two years of spending overdrive that has become the baseline for future spending. What kind of doofus can look at the numbers and claim that we have a revenue problem instead of a massive deficit spending problem?
If revenues were higher, we wouldn't have a massive deficit spending problem would we?

What problem did we have under Pres. Clinton? A massive surplus spending problem? Haha..
Bush Tax Cuts == Job Killer
June 2001: 132,047,000 employed
June 2003: 129,839,000 employed
2.21 million jobs were LOST after 2 years of Bush Tax Cuts.
     
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Jun 2, 2011, 01:38 PM
 
Originally Posted by turtle777 View Post
Uhm, yeah, no, this thread is NOT about Budget deficits. Thanks for playing though

-t
Umm.. yeah. Except the author of the article was confuse on so many levels. Goes from talking about GDP then to budget deficits.

Author can't even figure out what he was talking about.
Bush Tax Cuts == Job Killer
June 2001: 132,047,000 employed
June 2003: 129,839,000 employed
2.21 million jobs were LOST after 2 years of Bush Tax Cuts.
     
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Jun 2, 2011, 01:38 PM
 
Originally Posted by hyteckit View Post
If revenues were higher, we wouldn't have a massive deficit spending problem would we?
Yes you would. Politicians' fat backsides expand to fit the trousers they're in.
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Jun 2, 2011, 01:41 PM
 
A comparison to that math with what's gone on in Portugal or Greece would be interesting.
     
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Jun 2, 2011, 01:46 PM
 
Here be your problem with regard to the US vs the PIIGS...
The US basically forced an artificially fast growth to come out of the 1930s, and has been forcing this artificial speed ever since. To keep up, everyone else has also been forcing their growth to occur at an artificial speed - hence Portugal and Greece.
The snowball's near the bottom of the hill now... ...it'll soon be time to pay the piper. And it'll hurt.
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Jun 2, 2011, 01:46 PM
 
Originally Posted by Doofy View Post
Yes you would. Politicians' fat backsides expand to fit the trousers they're in.
Why do you think Republicans vote to keep oil subsidies and increase defense spending? Money goes back them.
Bush Tax Cuts == Job Killer
June 2001: 132,047,000 employed
June 2003: 129,839,000 employed
2.21 million jobs were LOST after 2 years of Bush Tax Cuts.
     
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Jun 2, 2011, 01:48 PM
 
Originally Posted by hyteckit View Post
Why do you think Republicans vote to keep oil subsidies and increase defense spending? Money goes back them.
A bit like how Democrats vote for policy which will return money back to their pockets (e.g. Al Gore's green investments).

They're all corrupt. Everywhere.
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Jun 2, 2011, 01:49 PM
 
Originally Posted by Doofy View Post
Here be your problem with regard to the US vs the PIIGS...
The US basically forced an artificially fast growth to come out of the 1930s, and has been forcing this artificial speed ever since. To keep up, everyone else has also been forcing their growth to occur at an artificial speed - hence Portugal and Greece.
The snowball's near the bottom of the hill now... ...it'll soon be time to pay the piper. And it'll hurt.

That's why Republican supply side economics doesn't work. Artificially increasing growth without the demand to sustain it.
Bush Tax Cuts == Job Killer
June 2001: 132,047,000 employed
June 2003: 129,839,000 employed
2.21 million jobs were LOST after 2 years of Bush Tax Cuts.
     
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Jun 2, 2011, 01:54 PM
 
Originally Posted by hyteckit View Post
That's why Republican supply side economics doesn't work. Artificially increasing growth without the demand to sustain it.
Nothing to do with supply-side economics. Everything to do with politicians messing with the money supply and sticking their noses into everything.
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Jun 2, 2011, 01:56 PM
 
Originally Posted by Doofy View Post
Nothing to do with supply-side economics. Everything to do with politicians messing with the money supply and sticking their noses into everything.
Funny thing you mentioned money 'supply'.
Bush Tax Cuts == Job Killer
June 2001: 132,047,000 employed
June 2003: 129,839,000 employed
2.21 million jobs were LOST after 2 years of Bush Tax Cuts.
     
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Jun 2, 2011, 02:30 PM
 
Screw all governments and big media. So much bullshit. It's hard to believe anything anymore. The net is full of trash. I just end up reading comments on articles these days and am skipping the content. It's real people like on here that have the good analysis.

The information age is a fuxkshow.
     
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Jun 2, 2011, 02:33 PM
 
My friend who is an Economist just sent me this remark after a quick look at this thread. He hasn't read anything else much on this.

Doesn't make any sense. There are four components to GDP and any of those can contribute to GDP growth.

GDP = domestic consumption + domestic investments + government spendings + net exports


Also the components are interconnected
e.g. GS goes up (government is borrowing). It means if the government is borrowing from domestic sources DC and DI will decrease cancelling out GS increase.
     
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Jun 2, 2011, 02:46 PM
 
Just wait until Interest rates go up, that current debt will explode.
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Jun 2, 2011, 02:56 PM
 
Originally Posted by freudling View Post
My friend who is an Economist just sent me this remark after a quick look at this thread. He hasn't read anything else much on this.

Doesn't make any sense. There are four components to GDP and any of those can contribute to GDP growth.

GDP = domestic consumption + domestic investments + government spendings + net exports


Also the components are interconnected
e.g. GS goes up (government is borrowing). It means if the government is borrowing from domestic sources DC and DI will decrease cancelling out GS increase.
Your friend must be a genius *facepalm*

What if the money "borrowed" is really printed ?
Why on earth would that effect DI or DC ?

OMG.

-t
     
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Jun 2, 2011, 03:16 PM
 
Originally Posted by Big Mac View Post
What kind of doofus can look at the numbers and claim that we have a revenue problem instead of a massive deficit spending problem?
We all know 'deficit spending' is only a problem when we have a Democrat as a president.

Carter - deficit spending. Worst president ever
Reagan - deficit spending. Not a problem
Bush Sr. - deficit spending. Not a problem
Clinton - surplus. Um... Clinton's penis
Bush Jr. - deficit spending. Not a problem
Obama - OMG, deficit spending. The sky is falling! Worst president ever
( Last edited by hyteckit; Jun 2, 2011 at 03:25 PM. )
Bush Tax Cuts == Job Killer
June 2001: 132,047,000 employed
June 2003: 129,839,000 employed
2.21 million jobs were LOST after 2 years of Bush Tax Cuts.
     
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Jun 2, 2011, 04:42 PM
 
I can refute hyteckit's preposterous replies to my challenge with the following words: Spending percentage of GDP. Look it up, hyteckit. Historically we've run 18%-20% budgets as percentage of GDP, but now it's at 24%.

hyteckit, you're objectively, absolutely wrong. We have a spending crisis, not a revenue problem. Unless you want to challenge the statistics, there's absolutely nothing you can say to the contrary that will change that fact. I expect an apology.

"The natural progress of things is for liberty to yield and government to gain ground." TJ
     
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Jun 2, 2011, 04:57 PM
 
1. Spending typically goes up during economic downturns due to increased demand on social safety net programs along with stimulative economic measures.

2. GDP typically goes down during economic downturns because well ... it's an economic downturn.

3. Given #1 and #2 above it's not surprising that spending as a percentage of GDP increases during an economic downturn.

The fallacy in this argument is that you are looking at an historical average which includes economic expansions and trying to compare that to the stats from an economic downturn. That's like taking the historical average for stock market ROI and comparing that to the yearly average for stock market ROI during the dot-com bust. Not quite an apples to apples comparison, n'est-ce pas?

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Jun 2, 2011, 05:08 PM
 
Originally Posted by Big Mac View Post
I can refute hyteckit's preposterous replies to my challenge with the following words: Spending percentage of GDP. Look it up, hyteckit. Historically we've run 18%-20% budgets as percentage of GDP, but now it's at 24%.

hyteckit, you're objectively, absolutely wrong. We have a spending crisis, not a revenue problem. Unless you want to challenge the statistics, there's absolutely nothing you can say to the contrary that will change that fact. I expect an apology.
Learn how to analyze data-points or datasets.

Instead of averaging, it would make more sense to use a linear regression.

Historically, spending as a percentage of GDP has been gradually increasing since 1950.

When we are fighting WWII, spending was running over 50% of GDP.
( Last edited by hyteckit; Jun 2, 2011 at 05:15 PM. )
Bush Tax Cuts == Job Killer
June 2001: 132,047,000 employed
June 2003: 129,839,000 employed
2.21 million jobs were LOST after 2 years of Bush Tax Cuts.
     
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Jun 2, 2011, 05:34 PM
 
Originally Posted by OAW View Post
1. Spending typically goes up during economic downturns due to increased demand on social safety net programs along with stimulative economic measures.

2. GDP typically goes down during economic downturns because well ... it's an economic downturn.
You state these things as if they were a law like gravity. They are not. It's Keynesian voodoo, and long been proven to not work and lead to economic disasters.

-t
     
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Jun 2, 2011, 05:38 PM
 
Originally Posted by Big Mac View Post
I can refute hyteckit's preposterous replies to my challenge with the following words...
Don't bother. Just put him on ignore. I did it a long time ago, and my blood pressure went down.

The funny thing is: he doesn't even remember, and still seems to be replying to me. LOL.

-t
     
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Jun 2, 2011, 05:40 PM
 
So you are actually arguing that during an economic downturn programs like Food Stamps, Unemployment Insurance, Welfare, Medicaid, etc don't encounter increased demand?

And you are saying that during an economic downturn GDP doesn't decrease?



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Jun 2, 2011, 05:41 PM
 
Originally Posted by turtle777 View Post
You state these things as if they were a law like gravity. They are not. It's Keynesian voodoo, and long been proven to not work and lead to economic disasters.

-t
Keynesian voodoo?

Explaining why GDP goes down during a recession/economic downturn is Keynesian voodoo?
Explaining why spending is up is Keynesian voodoo?

Temperatures are getting hotter during the summer too. Must be Keynesian voodoo.

It has nothing to do with Keynesian.
Bush Tax Cuts == Job Killer
June 2001: 132,047,000 employed
June 2003: 129,839,000 employed
2.21 million jobs were LOST after 2 years of Bush Tax Cuts.
     
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Jun 2, 2011, 05:50 PM
 
Originally Posted by Doofy View Post
At least until money is replaced by "carbons" and everyone can start fresh.
I've been thinking this for a while. Money has been basically energy for a while now. The link should be made explicit.
     
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Jun 2, 2011, 05:55 PM
 
Originally Posted by OAW View Post
So you are actually arguing that during an economic downturn programs like Food Stamps, Unemployment Insurance, Welfare, Medicaid, etc don't encounter increased demand?

And you are saying that during an economic downturn GDP doesn't decrease?
No, that's absolutely NOT what I'm saying.

If you read (and understand) what this thread is about, then you will understand that NATURALLY, US GDP should have declined as we are in a very deep recession, and it still should be declining.

The only reason why it's NOT declining is because the government printed money (= increased debt) and then proped up the economy.

-t
     
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Jun 2, 2011, 06:01 PM
 
Originally Posted by Doc HM View Post
I've been thinking this for a while. Money has been basically energy for a while now. The link should be made explicit.
The link is made, and the outlook is very negative.

Go and check out Chris Martenson's Crash Course.
He makes the link between money, prosperity and (easily available) energy.

He also makes a compelling case why everything (money, debt, resource extraction, energy used) looks like an exponential function that can not be sustained.

-t
     
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Jun 2, 2011, 06:07 PM
 
Originally Posted by turtle777 View Post
The link is made, and the outlook is very negative.

Go and check out Chris Martenson's Crash Course.
He makes the link between money, prosperity and (easily available) energy.

He also makes a compelling case why everything (money, debt, resource extraction, energy used) looks like an exponential function that can not be sustained.
Wrong end of the stick, I think. Maybe?

What I'm saying is that our fiat systems are going to collapse soon and the new currency will be "carbons", or at the very least "carbon" will be the new gold standard which currency is pegged to.

That's what all this global warming shite is about - to prep the public for the new currency without too much dissent. And that's why our governments aren't worried about the debts they're running up (they'll be wiped clean when everything moves to "carbons").

I don't believe for a minute that we're going to run out of oil (or even easily-obtained oil).
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Jun 2, 2011, 06:09 PM
 
Originally Posted by turtle777
No, that's absolutely NOT what I'm saying.

If you read (and understand) what this thread is about, then you will understand that NATURALLY, US GDP should have declined as we are in a very deep recession, and it still should be declining.

The only reason why it's NOT declining is because the government printed money (= increased debt) and then proped up the economy.

-t
Ok fine. But all I will say to that is that when you directly quote someone it's not unreasonable to presume that you are responding to that specific comment.

As to your larger point, I believe you are referring to Quantitative Easing by the Fed. Which is not exactly as you characterize it ....

Quantitative easing is often nicknamed "printing money" by the media. However, central banks state that the use of the newly created money is different in QE. With QE, the newly created money is used for buying government bonds or other financial assets, whereas the term "printing money" usually implies that the newly minted money is used to directly finance government deficits or pay off government debt (also known as "monetizing the government debt").

Central banks in most developed nations (e.g. UK, USA, Japan and EU) are forbidden by law to buy government debt directly from the government and must instead buy it from the secondary market. This two-step process, where the central bank buys government bonds that have previously been sold to private entities, has been called "monetizing the debt" by many analysts. The distinguishing characteristic between QE and monetizing debt is that with QE, the central bank is creating money to stimulate the economy, not to finance government spending. Also, the central bank has the stated intention of reversing the QE when the economy has recovered (by selling the government bonds and other financial assets back into the market). The only effective way to determine whether a central bank has monetized debt is to compare its performance relative to its stated objectives. Many central banks have adopted an inflation target. It is likely that a central bank is monetizing the debt if it continues to buy government debt when inflation is above target, and the government has problems with debt-financing.

According to economist Robert McTeer, former president of the Federal Reserve Bank of Dallas, there is nothing wrong with printing money during a recession, and quantitative easing is different from traditional monetary policy "only in its magnitude and pre-announcement of amount and timing".
If your contention is that our economic situation would be much worse if it were not for this practice then you get no argument from me. All I will say to that is ... the Fed is the Central Bank of the United States. And that's what Central Banks do.

OAW
     
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Jun 2, 2011, 06:10 PM
 
@ Doofy: I can agree with possibility of money becoming energy-based. The problem is that energy directly can't be money because it's not easily "transactionable".

Re: oil - I'm definitely in the peak cheap oil camp.

-t
     
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Jun 2, 2011, 06:22 PM
 
Originally Posted by turtle777 View Post
@ Doofy: I can agree with possibility of money becoming energy-based. The problem is that energy directly can't be money because it's not easily "transactionable".
What I heard from the corridors of power here some time ago went something like this:

- Every citizen gets a "carbons" ration.
- Every transaction requires spending some "carbons".
- If a citizen needs more "carbons" than his ration, he can buy more (with actual money) from whoever wants to sell them.

Thus, a sort of communism and a sort of gold carbon standard all rolled into one. As you'll probably be aware, it's already in place for industry - all TPTB need to do is filter it down to the plebs on the street.

Here's the new supplementary price tags:


...just getting the plebs used to the new way of doing things.

Originally Posted by turtle777 View Post
Re: oil - I'm definitely in the peak cheap oil camp.
Nah man. They're not going to peg currency to a dwindling resource - they'll only peg it to one they have control over.
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Jun 2, 2011, 09:39 PM
 
I can't figure out if you're a bigger fool or a bigger troll,
I don't get the trend lately where we take a disagreement and mix in some insults and names to round out a post. The rest of the forum doesn't seem afflicted, and there's no reason to accept it here.
     
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Jun 2, 2011, 09:45 PM
 
Originally Posted by Cold Warrior View Post
I don't get the trend lately where we take a disagreement and mix in some insults and names to round out a post. The rest of the forum doesn't seem afflicted, and there's no reason to accept it here.
Uhm, yeah, I think you DO need to differentiate.

Hyteckit DOES often troll. The only reason I don't report him is because I have him on ignore.
Look at the above post, typical for him, bringing one of his pet theories into play, derailing/distracting from the topic at hand.

-t
     
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Jun 2, 2011, 09:47 PM
 
Originally Posted by turtle777 View Post
Don't bother. Just put him on ignore. I did it a long time ago, and my blood pressure went down.
The funny thing is: he doesn't even remember, and still seems to be replying to me. LOL.
-t
Thank you turtle. The problem is I try to ignore such characters, but I still fall for the bait and feed the trolls more often than not. I've had hytecshit on ignore for years, but I still occasionally choose to read his posts for some reason. I guess I'm a masochist in that respect. He's a great troll.

Originally Posted by Cold Warrior View Post
I don't get the trend lately where we take a disagreement and mix in some insults and names to round out a post. The rest of the forum doesn't seem afflicted, and there's no reason to accept it here.
I respect that you're trying to keep things orderly and civil around here Cold Warrior. Your responsibility to police this forum is important and unenviable. With that said, what we're discussing in this thread is in my mind the life and death of the United States, and since my assets are still tied up in this country I have a very strong vested interest in the debate. And I don't really care about civility when it comes to combating sheer stupidity. It's just the way I am and the way I debate (especially in this type of semi-anonymous venue).

I think I need to take a break from the PWL for a while anyway.
( Last edited by Big Mac; Jun 2, 2011 at 09:54 PM. )

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Jun 2, 2011, 09:56 PM
 
Originally Posted by Doofy View Post
They're all corrupt. Everywhere.


We've allowed our politicians to take too much power, and taking it back is gonna be a bitch, what with all the tanks and bombs they've bought with all the loans they've been taking out on our money.
     
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Jun 2, 2011, 10:06 PM
 
Originally Posted by Wiskedjak View Post
We've allowed our politicians to take too much power
That's true, but it's also true that in a functioning democracy the people get the government they deserve. We have met the enemy, and truly we are it. It's not just the fault of the political elite that we're in the predicament we're in - the masses went along for the ride on the progressive road to enormous, quasi-Socialistic, tyrannical government and the gradual, inexorable smothering of the flame liberty.

"The natural progress of things is for liberty to yield and government to gain ground." TJ
     
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Jun 3, 2011, 12:03 AM
 
Originally Posted by Big Mac View Post
That's true, but it's also true that in a functioning democracy the people get the government they deserve. We have met the enemy, and truly we are it. It's not just the fault of the political elite that we're in the predicament we're in - the masses went along for the ride on the progressive road to enormous, quasi-Socialistic, tyrannical government and the gradual, inexorable smothering of the flame liberty.
Agree completely. I didn't mean to imply that the blame is on the politician. It's completely on us: we don't hold them accountable enough, we don't question them enough when they propose to take power and, too often, we don't make them work hard enough in their job interviews. We've let them convince us that they have the power rather than us. We're lazy, and we'll give them our vote for no better reason than the party they belong to.
( Last edited by Wiskedjak; Jun 3, 2011 at 12:42 AM. )
     
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Jun 3, 2011, 12:09 AM
 
Originally Posted by turtle777 View Post
Your friend must be a genius *facepalm*

What if the money "borrowed" is really printed ?
Why on earth would that effect DI or DC ?

OMG.

-t
His reply to you:

What if the money "borrowed" is really printed ?

Economists usually look at real GDP, not nominal so inflation resulting from money printing is not an issue.

Why on earth would that effect DI or DC ?

Because whoever wrote this comment obviously doesn't know a thing about economics, or even has any common sense. When a government borrows money it issues bonds or treasury bills that are bought by private parties. If that private party is local then that the money that party gives to the government cannot be used for purchasing goods (consumption) or private investment. The only government borrowing that doesn't affect directly domestic consumption or investments is borrowing from other countries.
     
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Jun 3, 2011, 11:28 AM
 
That isnt totally true with a fractional reserve system. Every time the government borrows money from the central bank (which charges interest for every dollor borrowed thus making it impossible to ever pay off the debts with out borrowing more) gets put into the banking system. The Bank only reserves 10% of this cash and loans out against 90% of it. But because they create the loans out of thin air it creates infraction from the added money supply. $100 borrowed with interest from central bank can turn into 400+ in debt with more interest. Its easier to link to Wikipedia then trying to explain fractional reserve banking.

Fractional-reserve banking - Wikipedia, the free encyclopedia
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Missed 2012 by 3 days, RIP Grandma :-(
     
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Jun 3, 2011, 11:59 AM
 
Originally Posted by freudling View Post
His reply to you:

What if the money "borrowed" is really printed ?

Economists usually look at real GDP, not nominal so inflation resulting from money printing is not an issue.
Yes, this is true. GDP should be shown adjusted for inflation.
The GDP deflator is based on the going inflation rate.
The issue here is that the CPI calculation has been changed significantly in the last 20 years to present a downward bias. Gimmicks like substitution and geometric weighting caused the CPI to be much lower than during the 1980s, and lower than even today in many countries that do not use those newfangled calculation methods.

So, if you want to see what inflation would be before those gimmicks were included, have a look at this:

Alternate Inflation Charts

The CPI today would be about 11% if Reagan were to calculate it.
What's the effect: a lower CPI will of course cause a lower GDP deflator, therefore, showing a higher GDP.
It's pretty clear that the "old way" of calculating the CPI would lead to a GDP deflator that would be showing NEGATIVE GDP growth for the past years.

Originally Posted by freudling View Post
When a government borrows money it issues bonds or treasury bills that are bought by private parties. If that private party is local then that the money that party gives to the government cannot be used for purchasing goods (consumption) or private investment. The only government borrowing that doesn't affect directly domestic consumption or investments is borrowing from other countries.
*sigh*

Ask your friend: what is QE, and what does it stand for and mean ?
It's direct monetization of government debt. The government does NOT take money from private parties when issuing treasuries, it will get freshly printed money from the Fed.

Look, the understatement of the CPI is the flip-side of the coin described in the OP article.
Normally, one would expect a honest GDP number being derived from honest CPI numbers. Once you fudge the CPI, you really don't know if GDP is growing or not. But since the CPI calculation is sort of a black box, it's not immediately visible that something has been tweakd to make things look better.

The article in my OP shows the same effect from a different angle: the government went into debt, spending the money, and this money became part of the GDP.
NORMALLY, going into debt that much by QE (printing money) would have a strong impact on CPI, and therefore, the extra effect from all the money on GDP would be adjusted away by the GDP deflator. But we are not in normal times.

The government is saying: we issues all this debt, but it had only a very small impact on CPI.
It's a lie !

Also, let's re-visit the cute GDP formula:

GDP = domestic consumption (DC) + domestic investments (DI) + government spendings (GS) + net exports
Saying that government spending does not increase GDP because it would come out of DC or DI is a dream.
Let's revisit WHY governments even start higher government spending. The narrative goes like this:

Economy turns down, a recession is at hand. Recession (simplified) means shrinking GDP.
Why does the GDP shrink ? Because DC and DI go down ! I don't think the US has ever entered a recession because GS was cut.

So, the government argues that it needs to INCREASE GS to counteract the decrease of DC and DI in order to stabilize the GDP. This is the whole premise behind Keynesian stimulus voodoo.
At this point, EVERYONE believes that the government can stimulate the economy (GDP) by GS.
Nobody ever says: "wait, higher GS will decrease DC and DI, higher GS is useless."

So, how can the government "inject" money that's not taken from DC or DI ?
Printing it, so ADDITIONAL funds can flow in. Then underestimate the "cost of printing" (i.e. inflation), et voila, you have the appearance of GDP growth, w/o the fundamentals proving it out.

-t
     
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Jun 3, 2011, 12:12 PM
 
Originally Posted by Athens View Post
Its easier to link to Wikipedia then trying to explain fractional reserve banking.

Fractional-reserve banking - Wikipedia, the free encyclopedia
YouTube - ‪Corrupt Banking System 1 of 5‬‏

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That's where there's thunder... and the wind shouts back.
     
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Jun 3, 2011, 01:30 PM
 
I'll have to watch it later tonight.
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Jun 3, 2011, 03:08 PM
 
Originally Posted by Athens View Post
That isnt totally true with a fractional reserve system. Every time the government borrows money from the central bank (which charges interest for every dollor borrowed thus making it impossible to ever pay off the debts with out borrowing more) gets put into the banking system. The Bank only reserves 10% of this cash and loans out against 90% of it. But because they create the loans out of thin air it creates infraction from the added money supply. $100 borrowed with interest from central bank can turn into 400+ in debt with more interest. Its easier to link to Wikipedia then trying to explain fractional reserve banking.

Fractional-reserve banking - Wikipedia, the free encyclopedia
His reply:

Fractional reserve banking is basically banking everybody does, including you and I.

Fractional reserve banking is a good point but unfortunately it has no effect on real macro variables (e.g. GDP) (or at least is not supposed to, especially in the long run) since money is just means of exchange and more 1 $100 good can be purchased with a single $100 bill.

Fractional reserve banking is akin to money velocity concept (quantity theory of money)

amount of money in the economy x velocity of money = total amount of goods and services x their prices

you can rewrite it to describe fractional reserve banking (in a simplified form)

amount of money deposited x reserve coefficient = total bank investment

Suppose if D is initial deposit and 0<m<1 is a minimum deposit rates money propagation/'creation' through re-loaning will look like

D + (1-m) x D + (1-m)^2 x D + (1-m)^3 x D .....

= D / m

So in theory a single deposit D can create up to D/m bank investments and generate r x (D/m) amount of nominal interest.

However, because money is just a means of exchange and denotes ownership of a real product (investments and interest), it doesn't matter how many times the money is re-loaned. It is actually a good thing since it stimulates real production through investments.
( Last edited by freudling; Jun 3, 2011 at 04:25 PM. )
     
 
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