tag:blogger.com,1999:blog-4900303239154048192.post4764948040863356396..comments2024-03-06T06:34:42.881-05:00Comments on EconoSpeak: When to Impose Fiscal Restraint and With WhatUnknownnoreply@blogger.comBlogger2125tag:blogger.com,1999:blog-4900303239154048192.post-28232666507660573072009-06-28T21:45:28.089-04:002009-06-28T21:45:28.089-04:00"Krugman supposedly says:
There are two reaso..."Krugman supposedly says:<br />There are two reasons long-term rates might rise, first more worries about the debt and inflation in the future would drive rates up, and second the prospect of better economic conditions in the future would have the same effect, rates would go up."<br /><br />Both of these things are the same thing: If the money holders think wages will rise in the future then they must get higher returns to keep pace with this eventuality.<br /><br />Then we have:<br /><br />"Suppose we receive bad news about the current state of the economy. That should cause expectations of lower output growth in the future, and hence lower tax revenues and higher spending on social programs than would exist with a stronger economy. <br /><br />(ok so far, I think)<br /><br />So the bad news should cause an expectation of a larger deficit and more inflation worries, and that would drive long-term interest rates up<br /><br />HUH??? This does not compute.<br /><br />If the holder of money believes the future economy will tank then his money will command more labor in the future than it does today. Less interest is needed to protect his command of labor -- his command of the market.<br /><br />And so this theory is wrong and the real world events of the last week show that it is wrong.<br /><br />As the economy improves then interest rates will rise and as the prospects of the longer term improve then longer term rates will rise also. That really isn't all that hard to come to grips with.<br /><br />Where Am I wrong on this?TheTruckerhttps://www.blogger.com/profile/10346127768102862741noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-73339337131392595292009-06-28T20:14:23.751-04:002009-06-28T20:14:23.751-04:00The Congressional Budget Office (CBO) has just rel...The Congressional Budget Office (CBO) has just released its long-term budget outlook. The dismal report warns:<br />“[l]arge budget deficits would reduce national saving, leading to more borrowing from abroad and less domestic investment, which in turn would depress income growth in the United States.”<br />However, growing budget deficits do not reduce national savings. They do just the opposite. Indeed, the private sector — households and firms taken as a whole — cannot attain a surplus position unless some other sector (the public sector or the foreign sector) takes the opposite position. Again, it is an indisputable feature of balance sheet accounting that is governed by the following identity: <br /><br />Private Sector Surplus = Public Sector Deficit + Current account Surplus <br /><br />Read more here http://neweconomicperspectives.blogspot.comEconomisthttp://neweconomicperspectives.blogspot.comnoreply@blogger.com