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| William F Hummel |
 Posted: Sat Oct 15, 2005 8:56 am |
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Guest
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Tax or Borrow?
Suppose the government planned a one-year program to repair the
crumbling highway system at a cost of $100 billion. If the Treasury
borrowed the funds directly from the Fed, that would be equivalent to
printing money, with inflationary implications. The only truly viable
options are taxing or borrowing from the public at market rates. .
Implementing the Options
The simplest taxing option would be a one-time surcharge on everyone's
tax bill. Based on current tax revenues which total about $2000
billion, that would amount to a 5% surcharge for one year.
The borrowing option would involve the sale of $100 billion in
Treasury bonds to the public at an interest rate determined in the
market, which we will assume averages 5%. With an otherwise balanced
budget, and assuming no increase in tax revenues, additional borrowing
would be required to cover the interest payments. In that unlikely
case the amount borrowed and interest paid would increase at an annual
rate of 5%.
The Common Elements
In both options, the government creates a circulation of financial
assets with the public which enables work that would not normally be
initiated by private enterprise. The government receives $100 billion
from the public. In return the public receives the benefits of the
highway repair, and those doing the work receive income of $100
billion paid by the government. The taxes due on that income will
cover a portion of the interest payments due to the bond holders in
the borrowing option.
Other things equal, the entire $100 billion is paid out as fast as it
is collected, because the Treasury does not maintain balances in
excess of what it needs to cover its near-term obligations.
Regardless of how it is funded, the program will result in some
redistribution of financial assets. However it is important to note
that all government spending redistributes financial assets within the
private sector.
The Differences
In the taxing option, the government extracts the funds in proportion
to one's normal tax liabilities. That means most of the cost will be
covered by those in the higher taxable income group.
In the borrowing option the government obtains the funds on a
voluntary basis, according to the investment preferences of the
public. Again most of the funds come from those with higher taxable
incomes because they normally have more loanable funds.
The evidence of a tax payment is a cancelled check. The evidence of a
loan is a cancelled check plus an interest-bearing Treasury security.
The latter can be sold, traded, or pledged as collateral for a loan,
and thus has value that the cancelled check does not.
Financial Equivalence of Both Options
Measured in terms of present value, both options are equivalent in
cost to the public as a whole. In the taxing option, the present
value of the money paid up front is obviously $100 billion. In the
borrowing option, the present value of the future tax required to
retire the debt is also $100 billion. To understand why that is so,
consider the following scenario:.
With no tax to pay up front, the public could invest the $100 billion
in a sinking fund returning 5% per year, the assumed yield on the
Treasury bonds. At some future date, if the government chose to pay
off that debt, it could levy a one-time tax surcharge, which the
sinking fund would fully cover. Thus the $100 billion paid for the
sinking fund is equivalent to having paid that amount in taxes up
front. Note: the present value does not depend on whether or not the
$100 billion was actually invested.
Effects on Wealth Distribution
The taxing option involves no net loss of financial wealth to the
private sector. In effect the government merely transfers $100
billion from those who pay the additional taxes to those who receive
the income for doing the work. While the two groups are not mutually
exclusive, the transfer is mainly from higher income to lower income
earners simply because the former pay the bulk of the taxes and the
latter do most of the work.
The borrowing option increases the financial wealth of the private
sector. The funds used to purchase the $100 billion in bonds are
returned as payments for the work, and the bonds represent new
savings. The interest payment of $5 billion on the bonds is drawn
mainly from the higher taxable income group who are also more likely
to own the bonds.
In reality, only a small fraction of the bonds are bought by
individuals. Most are bought by institutions such as state and local
governments, banks, insurance companies, and pension funds, which are
in turn owned by individuals. It is therefore impossible to determine
quantitatively the redistribution at the household level of financial
wealth in the borrowing option.
A More Likely Scenario
The two options considered above are opposite extremes for financing
the $100 billion program. Some combination of the two is a more
likely scenario in a growing economy. The $5 billion interest cost in
the borrowing option would require an increase of only 0.25% in total
tax revenues. That is well below the growth rate in total tax
revenues which normally averages about 5% per year. Thus the funds
needed to pay the interest in the borrowing option would likely be
available without additional borrowing.
There is one clear argument in favor of borrowing for the highway
repair program. The real benefits can be expected to last several
decades. To the extent that there are any financial inequities, it
would be fair to leave some of the costs to later generations who will
also enjoy the real benefits.
William F Hummel |
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| Phil Scott |
| Posted: Sat Oct 15, 2005 2:11 pm |
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..
another bogus argument from Hummel, who is assuming that tax
money or money printed by govt goes to create durable goods ..
thus value...and is not for the most part wasted with the only
result more crap and toilet paper down the government office
building toilets...creating most cases no value what so
ever...just waste. AND counter productivity due to the
stress on the working culture it takes to earn and caugh up
the taxes.
Hummel ignores the fact of the US shipping its treasure off to
china in order to pay for imported trinkets...and going into
debt to do so, requiring interest payments to these other
nations.
All of that is a pure recipe for disaster and is commonly
repeated in history. The US at this point is already steeply
down that slippery slope. Rhetoric wont change that...
cutting the size of government by 70% or more would however.
Not to worry though...US govt will be reduced by 70% or more
by the time this mess is over...no taxes due to a collapsed
economy...no way to fund goverment no matter how many train
loads of bogus money it prints.
Phil Scott
Phil Scott
"William F Hummel" <wfhummel@comcast.net> wrote in message
news:l262l15b9levp2onghr7nmhe9likf60bo1@4ax.com...
[quote:337676621e]Tax or Borrow?
Suppose the government planned a one-year program to repair
the
crumbling highway system at a cost of $100 billion. If the
Treasury
borrowed the funds directly from the Fed, that would be
equivalent to
printing money, with inflationary implications. The only
truly viable
options are taxing or borrowing from the public at market
rates. .
Implementing the Options
The simplest taxing option would be a one-time surcharge on
everyone's
tax bill. Based on current tax revenues which total about
$2000
billion, that would amount to a 5% surcharge for one year.
The borrowing option would involve the sale of $100 billion
in
Treasury bonds to the public at an interest rate determined
in the
market, which we will assume averages 5%. With an otherwise
balanced
budget, and assuming no increase in tax revenues, additional
borrowing
would be required to cover the interest payments. In that
unlikely
case the amount borrowed and interest paid would increase at
an annual
rate of 5%.
The Common Elements
In both options, the government creates a circulation of
financial
assets with the public which enables work that would not
normally be
initiated by private enterprise. The government receives
$100 billion
from the public. In return the public receives the benefits
of the
highway repair, and those doing the work receive income of
$100
billion paid by the government. The taxes due on that
income will
cover a portion of the interest payments due to the bond
holders in
the borrowing option.
Other things equal, the entire $100 billion is paid out as
fast as it
is collected, because the Treasury does not maintain
balances in
excess of what it needs to cover its near-term obligations.
Regardless of how it is funded, the program will result in
some
redistribution of financial assets. However it is important
to note
that all government spending redistributes financial assets
within the
private sector.
The Differences
In the taxing option, the government extracts the funds in
proportion
to one's normal tax liabilities. That means most of the
cost will be
covered by those in the higher taxable income group.
In the borrowing option the government obtains the funds on
a
voluntary basis, according to the investment preferences of
the
public. Again most of the funds come from those with higher
taxable
incomes because they normally have more loanable funds.
The evidence of a tax payment is a cancelled check. The
evidence of a
loan is a cancelled check plus an interest-bearing Treasury
security.
The latter can be sold, traded, or pledged as collateral for
a loan,
and thus has value that the cancelled check does not.
Financial Equivalence of Both Options
Measured in terms of present value, both options are
equivalent in
cost to the public as a whole. In the taxing option, the
present
value of the money paid up front is obviously $100 billion.
In the
borrowing option, the present value of the future tax
required to
retire the debt is also $100 billion. To understand why
that is so,
consider the following scenario:.
With no tax to pay up front, the public could invest the
$100 billion
in a sinking fund returning 5% per year, the assumed yield
on the
Treasury bonds. At some future date, if the government
chose to pay
off that debt, it could levy a one-time tax surcharge, which
the
sinking fund would fully cover. Thus the $100 billion paid
for the
sinking fund is equivalent to having paid that amount in
taxes up
front. Note: the present value does not depend on whether
or not the
$100 billion was actually invested.
Effects on Wealth Distribution
The taxing option involves no net loss of financial wealth
to the
private sector. In effect the government merely transfers
$100
billion from those who pay the additional taxes to those who
receive
the income for doing the work. While the two groups are not
mutually
exclusive, the transfer is mainly from higher income to
lower income
earners simply because the former pay the bulk of the taxes
and the
latter do most of the work.
The borrowing option increases the financial wealth of the
private
sector. The funds used to purchase the $100 billion in
bonds are
returned as payments for the work, and the bonds represent
new
savings. The interest payment of $5 billion on the bonds is
drawn
mainly from the higher taxable income group who are also
more likely
to own the bonds.
In reality, only a small fraction of the bonds are bought by
individuals. Most are bought by institutions such as state
and local
governments, banks, insurance companies, and pension funds,
which are
in turn owned by individuals. It is therefore impossible to
determine
quantitatively the redistribution at the household level of
financial
wealth in the borrowing option.
A More Likely Scenario
The two options considered above are opposite extremes for
financing
the $100 billion program. Some combination of the two is a
more
likely scenario in a growing economy. The $5 billion
interest cost in
the borrowing option would require an increase of only 0.25%
in total
tax revenues. That is well below the growth rate in total
tax
revenues which normally averages about 5% per year. Thus
the funds
needed to pay the interest in the borrowing option would
likely be
available without additional borrowing.
There is one clear argument in favor of borrowing for the
highway
repair program. The real benefits can be expected to last
several
decades. To the extent that there are any financial
inequities, it
would be fair to leave some of the costs to later
generations who will
also enjoy the real benefits.
William F Hummel[/quote:337676621e] |
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| zzbunker |
| Posted: Sat Oct 15, 2005 7:11 pm |
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Guest
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William F Hummel wrote:
[quote:dc12315ccc]Tax or Borrow?
Suppose the government planned a one-year program to repair the
crumbling highway system at a cost of $100 billion. If the Treasury
borrowed the funds directly from the Fed, that would be equivalent to
printing money, with inflationary implications. The only truly viable
options are taxing or borrowing from the public at market rates. .
Implementing the Options
The simplest taxing option would be a one-time surcharge on everyone's
tax bill. Based on current tax revenues which total about $2000
billion, that would amount to a 5% surcharge for one year.
[/quote:dc12315ccc]
[quote:dc12315ccc]
The borrowing option would involve the sale of $100 billion in
Treasury bonds to the public at an interest rate determined in the
market, which we will assume averages 5%. With an otherwise balanced
budget, and assuming no increase in tax revenues, additional borrowing
would be required to cover the interest payments. In that unlikely
case the amount borrowed and interest paid would increase at an annual
rate of 5%.
The Common Elements
In both options, the government creates a circulation of financial
assets with the public which enables work that would not normally be
initiated by private enterprise. The government receives $100 billion
from the public. In return the public receives the benefits of the
highway repair, and those doing the work receive income of $100
billion paid by the government. The taxes due on that income will
cover a portion of the interest payments due to the bond holders in
the borrowing option.
Other things equal, the entire $100 billion is paid out as fast as it
is collected, because the Treasury does not maintain balances in
excess of what it needs to cover its near-term obligations.
Regardless of how it is funded, the program will result in some
redistribution of financial assets. However it is important to note
that all government spending redistributes financial assets within the
private sector.
[/quote:dc12315ccc]
It's not that simple. Since the only reason the US even bothers
to do anything with highways is because it's the most
expeditious method of redistributing wealth
from the private sector to The UN. |
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| Guest |
| Posted: Sat Oct 15, 2005 9:25 pm |
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On Sat, 15 Oct 2005 07:56:45 -0700, William F Hummel
<wfhummel@comcast.net> wrote:
[quote:afd8494a38]Tax or Borrow?
Suppose the government planned a one-year program to repair the
crumbling highway system at a cost of $100 billion. If the Treasury
borrowed the funds directly from the Fed, that would be equivalent to
printing money, with inflationary implications. The only truly viable
options are taxing or borrowing from the public at market rates. .
Implementing the Options
The simplest taxing option would be a one-time surcharge on everyone's
tax bill.
[/quote:afd8494a38]
That would be simple, but unworkable, as some people can't afford to
pay any more tax. Mr Hummel is, as usual, trying to prevent his
readers from knowing the fact that taxes can only be paid by people
who have the money to pay them with. In economics, this is called the
"ability to pay" principle, and is one of exactly two fundamental
principles of sound tax design (the other being "beneficiary pay")
that are universally accepted by all competent economists. People's
ability to pay taxes is by definition measured by their assets, not
their current tax liabilities.
[quote:afd8494a38]Regardless of how it is funded, the program will result in some
redistribution of financial assets. However it is important to note
that all government spending redistributes financial assets within the
private sector.
[/quote:afd8494a38]
Correct. Usually away from those who are the most productive and
towards those who already have the most financial assets.
[quote:afd8494a38]In the taxing option, the government extracts the funds in proportion
to one's normal tax liabilities.
[/quote:afd8494a38]
As explained above, that cannot be done, as only those with additional
assets are capable of paying any more tax.
[quote:afd8494a38]That means most of the cost will be
covered by those in the higher taxable income group.
[/quote:afd8494a38]
However, a better option would be to tax those who would otherwise
lend the $100G to government, as they by definition have nothing
better to do with their money than let government spend it.
[quote:afd8494a38]In the borrowing option the government obtains the funds on a
voluntary basis, according to the investment preferences of the
public. Again most of the funds come from those with higher taxable
incomes because they normally have more loanable funds.
[/quote:afd8494a38]
No. Those who have the most loanable funds -- the rich and the banks
and other financial institutions they own -- rarely pay any
significant amount of income tax, because they have many ways of
rendering their immense incomes untaxable. Recall Helmsley's Law:
"Only the little people pay taxes."
[quote:afd8494a38]The taxing option involves no net loss of financial wealth to the
private sector. In effect the government merely transfers $100
billion from those who pay the additional taxes to those who receive
the income for doing the work. While the two groups are not mutually
exclusive, the transfer is mainly from higher income to lower income
earners simply because the former pay the bulk of the taxes and the
latter do most of the work.
[/quote:afd8494a38]
That is misleading. The people who pay most of the income tax are
high-income _working_ people, not the high-financial-asset rich.
[quote:afd8494a38]The borrowing option increases the financial wealth of the private
sector.
[/quote:afd8494a38]
Only in a sense. Because the identity of the future taxpayer is not
known, the additional taxes he will pay as a result of the borrowing
are not recorded anywhere as a private-sector liability. Mr Hummel
would have you believe that because this increased tax liability is
not recorded anywhere, it does not really exist.
[quote:afd8494a38]The funds used to purchase the $100 billion in bonds are
returned as payments for the work, and the bonds represent new
savings.
[/quote:afd8494a38]
The bonds are not savings. They are merely a claim on the taxes to be
paid by future taxpayers -- "extortion futures" would be a more
accurate term for them than "savings."
[quote:afd8494a38]The interest payment of $5 billion on the bonds is drawn
mainly from the higher taxable income group who are also more likely
to own the bonds.
[/quote:afd8494a38]
No, that is completely false. The high-income-tax-liability group
consists almost entirely of working people, and is quite different
from the high-financial-asset group of idle rich, wealthy retirees and
financial institutions who would buy the bonds. The borrowing option
thus effects an unrequited, forcible transfer of wealth from those who
earn a lof of money to those who own a lot of money.
[quote:afd8494a38]In reality, only a small fraction of the bonds are bought by
individuals. Most are bought by institutions such as state and local
governments, banks, insurance companies, and pension funds, which are
in turn owned by individuals. It is therefore impossible to determine
quantitatively the redistribution at the household level of financial
wealth in the borrowing option.
[/quote:afd8494a38]
But one thing is absolutely certain: the money will be borrowed from
those who have it, and who have nothing better to do with it than give
it to government to spend. Why not simply tax them for it?
[quote:afd8494a38]There is one clear argument in favor of borrowing for the highway
repair program. The real benefits can be expected to last several
decades. To the extent that there are any financial inequities, it
would be fair to leave some of the costs to later generations who will
also enjoy the real benefits.
[/quote:afd8494a38]
That is also false. Effectively all the real benefits will go to
landowners in the areas served by the highways, and will be fully
captured by them shortly after the work is completed. The general
public, in order to use and benefit by the highways, will have to pay
landowners full market price for access to them.
-- Roy L |
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| Zerge |
| Posted: Mon Oct 17, 2005 11:57 am |
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zzbunker wrote:
[quote:57ce68dbc4]William F Hummel wrote:
Tax or Borrow?
Suppose the government planned a one-year program to repair the
crumbling highway system at a cost of $100 billion. If the Treasury
borrowed the funds directly from the Fed, that would be equivalent to
printing money, with inflationary implications. The only truly viable
options are taxing or borrowing from the public at market rates. .
Implementing the Options
The simplest taxing option would be a one-time surcharge on everyone's
tax bill. Based on current tax revenues which total about $2000
billion, that would amount to a 5% surcharge for one year.
The borrowing option would involve the sale of $100 billion in
Treasury bonds to the public at an interest rate determined in the
market, which we will assume averages 5%. With an otherwise balanced
budget, and assuming no increase in tax revenues, additional borrowing
would be required to cover the interest payments. In that unlikely
case the amount borrowed and interest paid would increase at an annual
rate of 5%.
The Common Elements
In both options, the government creates a circulation of financial
assets with the public which enables work that would not normally be
initiated by private enterprise. The government receives $100 billion
from the public. In return the public receives the benefits of the
highway repair, and those doing the work receive income of $100
billion paid by the government. The taxes due on that income will
cover a portion of the interest payments due to the bond holders in
the borrowing option.
Other things equal, the entire $100 billion is paid out as fast as it
is collected, because the Treasury does not maintain balances in
excess of what it needs to cover its near-term obligations.
Regardless of how it is funded, the program will result in some
redistribution of financial assets. However it is important to note
that all government spending redistributes financial assets within the
private sector.
It's not that simple. Since the only reason the US even bothers
to do anything with highways is because it's the most
expeditious method of redistributing wealth
from the private sector to The UN.
[/quote:57ce68dbc4]
The UN?? How, exactly?? |
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| zzbunker |
| Posted: Mon Oct 17, 2005 1:49 pm |
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Guest
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Zerge wrote:
[quote:d4a0157b5c]zzbunker wrote:
William F Hummel wrote:
Tax or Borrow?
Suppose the government planned a one-year program to repair the
crumbling highway system at a cost of $100 billion. If the Treasury
borrowed the funds directly from the Fed, that would be equivalent to
printing money, with inflationary implications. The only truly viable
options are taxing or borrowing from the public at market rates. .
Implementing the Options
The simplest taxing option would be a one-time surcharge on everyone's
tax bill. Based on current tax revenues which total about $2000
billion, that would amount to a 5% surcharge for one year.
The borrowing option would involve the sale of $100 billion in
Treasury bonds to the public at an interest rate determined in the
market, which we will assume averages 5%. With an otherwise balanced
budget, and assuming no increase in tax revenues, additional borrowing
would be required to cover the interest payments. In that unlikely
case the amount borrowed and interest paid would increase at an annual
rate of 5%.
The Common Elements
In both options, the government creates a circulation of financial
assets with the public which enables work that would not normally be
initiated by private enterprise. The government receives $100 billion
from the public. In return the public receives the benefits of the
highway repair, and those doing the work receive income of $100
billion paid by the government. The taxes due on that income will
cover a portion of the interest payments due to the bond holders in
the borrowing option.
Other things equal, the entire $100 billion is paid out as fast as it
is collected, because the Treasury does not maintain balances in
excess of what it needs to cover its near-term obligations.
Regardless of how it is funded, the program will result in some
redistribution of financial assets. However it is important to note
that all government spending redistributes financial assets within the
private sector.
It's not that simple. Since the only reason the US even bothers
to do anything with highways is because it's the most
expeditious method of redistributing wealth
from the private sector to The UN.
The UN?? How, exactly??
[/quote:d4a0157b5c]
Where did you think cement mixers, bulldozers, and plastic explosives
come from. I'll give you give a quarter of a hint.
The country is the country is called moron Rome,
not New York or the USof A. |
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| tonyp |
| Posted: Sun Oct 23, 2005 8:34 pm |
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Guest
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"William F Hummel" <wfhummel@comcast.net> wrote
[quote:fba4746b40]The evidence of a tax payment is a cancelled check. The evidence of a
loan is a cancelled check plus an interest-bearing Treasury security.
The latter can be sold, traded, or pledged as collateral for a loan,
and thus has value that the cancelled check does not. ...
The borrowing option increases the financial wealth of the private
sector.
[/quote:fba4746b40]
Let's consider a third scenario: government _compels_ lending to itself.
Instead of borrowing from those who choose to lend, or surcharging
everyone's tax bill 5%, it requires _everyone_ to buy government bonds to
the tune of 5% of his tax bill, this year.
Note that these compulsory bonds are perfectly ordinary Treasury securities.
They can be "sold, traded, or pledged as collateral for a loan", and
therefore also "increase the financial wealth of the private sector". The
only difference from your more traditional borrowing scenario is the
(initial) _distribution_ of this "financial wealth" over the population.
So, discuss: how is this third scenario different from a tax surcharge? Or
from printing money?
-- TP |
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| William F Hummel |
| Posted: Mon Oct 24, 2005 10:00 am |
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Guest
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On Sun, 23 Oct 2005 22:34:45 -0400, "tonyp" <tonyp@world.std.com>
wrote:
[quote:ccf7592260]
"William F Hummel" <wfhummel@comcast.net> wrote
The evidence of a tax payment is a cancelled check. The evidence of a
loan is a cancelled check plus an interest-bearing Treasury security.
The latter can be sold, traded, or pledged as collateral for a loan,
and thus has value that the cancelled check does not. ...
The borrowing option increases the financial wealth of the private
sector.
Let's consider a third scenario: government _compels_ lending to itself.
Instead of borrowing from those who choose to lend, or surcharging
everyone's tax bill 5%, it requires _everyone_ to buy government bonds to
the tune of 5% of his tax bill, this year.
Note that these compulsory bonds are perfectly ordinary Treasury securities.
They can be "sold, traded, or pledged as collateral for a loan", and
therefore also "increase the financial wealth of the private sector". The
only difference from your more traditional borrowing scenario is the
(initial) _distribution_ of this "financial wealth" over the population.
So, discuss: how is this third scenario different from a tax surcharge? Or
from printing money?
Interesting questions:[/quote:ccf7592260]
Your third scenario, compelling _everyone_ to buy Treasury securities,
has the following differences from the voluntary case.
Since there is no bid/ask market mechanism involved, the interest rate
on the securities would have to be set arbitrarily. There are
basically two cases: (1) no interest, and (2) an approximate market
rate of interest, which the Treasury would have guess at.
If no interest were paid on the securities, their present value would
immediately fall below par. They would not trade as ordinary
securities.
With an administered rate, presumably selected by the Treasury, the
present value could be somewhat higher or lower than par depending on
how well the Treasury guessed.
In either case, as distinct from the taxing option, the private sector
would have more financial assets to play with. The wealth effect
would result in higher aggregate demand than in the taxing option,
which is favorable to economic growth. If you own $1M in T-bills, you
are more likely to spend or start a new business than if you don't.
On the other hand, asset prices are likely to become inflated with too
much of this wealth effect, an undesirable outcome.
Your fourth scenario, printing money, would force the Fed to sell an
equal amount of Treasury security securities from its own portfolio in
order to maintain control of the Fed funds rate. That's feasible only
on a limited basis because the Fed has a limited supply of securities
to sell. There would be no net increase in financial wealth of the
private sector, so I think that aggregate demand would not be affected
significantly. |
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| Straydog |
| Posted: Mon Oct 24, 2005 11:00 am |
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Guest
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On Mon, 24 Oct 2005, William F Hummel wrote:
[quote:880b56dd04]On Sun, 23 Oct 2005 22:34:45 -0400, "tonyp" <tonyp@world.std.com
wrote:
"William F Hummel" <wfhummel@comcast.net> wrote
The evidence of a tax payment is a cancelled check. The evidence of a
loan is a cancelled check plus an interest-bearing Treasury security.
The latter can be sold, traded, or pledged as collateral for a loan,
and thus has value that the cancelled check does not. ...
The borrowing option increases the financial wealth of the private
sector.
Let's consider a third scenario: government _compels_ lending to itself.
Instead of borrowing from those who choose to lend, or surcharging
everyone's tax bill 5%, it requires _everyone_ to buy government bonds to
the tune of 5% of his tax bill, this year.
Note that these compulsory bonds are perfectly ordinary Treasury securities.
They can be "sold, traded, or pledged as collateral for a loan", and
therefore also "increase the financial wealth of the private sector". The
only difference from your more traditional borrowing scenario is the
(initial) _distribution_ of this "financial wealth" over the population.
So, discuss: how is this third scenario different from a tax surcharge? Or
from printing money?
Interesting questions:
Your third scenario, compelling _everyone_ to buy Treasury securities,
has the following differences from the voluntary case.
Since there is no bid/ask market mechanism involved, the interest rate
on the securities would have to be set arbitrarily. There are
basically two cases: (1) no interest, and (2) an approximate market
rate of interest, which the Treasury would have guess at.
[/quote:880b56dd04]
The Treasury does not _guess_ for any of the U.S. Savings bonds (all of
the series, whether fixed or variable [pegged]) and they have been doing
this for many many decades. Your assumptions are not all-inclusive.
[quote:880b56dd04]If no interest were paid on the securities, their present value would
immediately fall below par. They would not trade as ordinary
securities.
[/quote:880b56dd04]
Zero-coupon bonds have been around for some time, also. Your "strawman"
setup here, is also incomplete and lacking.
[quote:880b56dd04]With an administered rate, presumably selected by the Treasury, the
present value could be somewhat higher or lower than par depending on
how well the Treasury guessed.
[/quote:880b56dd04]
Any of this would be irrelevant if the govt required purchase.
[quote:880b56dd04]In either case, as distinct from the taxing option, the private sector
would have more financial assets to play with.
[/quote:880b56dd04]
Well, that would depend on the volume of compelled purchase, wouldn't it?
The wealth effect
[quote:880b56dd04]would result in higher aggregate demand than in the taxing option,
which is favorable to economic growth.
[/quote:880b56dd04]
Rich people (the wealth effect) would make it whatever they wanted.
If you own $1M in T-bills, you
[quote:880b56dd04]are more likely to spend or start a new business than if you don't.
[/quote:880b56dd04]
Not if you could arrange $10 million in credet.
[quote:880b56dd04]On the other hand, asset prices are likely to become inflated with too
much of this wealth effect, an undesirable outcome.
[/quote:880b56dd04]
Your own speculation?
[quote:880b56dd04]Your fourth scenario, printing money, would force the Fed to sell an
equal amount of Treasury security securities from its own portfolio in
order to maintain control of the Fed funds rate.
[/quote:880b56dd04]
Above, you said that the interest would have to be "guessed" but how much
money to print? Would you say they have to "guess" how much of that to
print?
That's feasible only
[quote:880b56dd04]on a limited basis because the Fed has a limited supply of securities
to sell. There would be no net increase in financial wealth of the
private sector, so I think that aggregate demand would not be affected
significantly.
[/quote:880b56dd04]
Since when is financial wealth part of the equation? |
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| tonyp |
| Posted: Tue Oct 25, 2005 9:37 am |
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"William F Hummel" <wfhummel@comcast.net> wrote
[quote:d15a4974d4]In either case, as distinct from the taxing option, the private sector
would have more financial assets to play with.
[/quote:d15a4974d4]
Right. If we just look at the _aggregate_ "financial wealth of the private
sector", it makes no difference whether everybody, or only some people, buy
the bonds.
[quote:d15a4974d4]The wealth effect
would result in higher aggregate demand than in the taxing option,
which is favorable to economic growth. If you own $1M in T-bills, you
are more likely to spend or start a new business than if you don't.
On the other hand, asset prices are likely to become inflated with too
much of this wealth effect, an undesirable outcome.
[/quote:d15a4974d4]
Right again. Now, does the tendency to inflation depend on the _aggregate_
increase in "FWotPS", or on the _distribution_ of this increase?
-- TP |
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| tonyp |
| Posted: Tue Oct 25, 2005 6:37 pm |
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"Gordon Sande" <g.sande@worldnet.att.net> wrote
[quote:010a1befd9]I must have missed the bit where you discuss paying off the bonds.
I thought there was something about taxes being needed to pay off the
bonds.[/quote:010a1befd9]
You must be new here. You seem to have missed my occasional tirades on
"privatizing the national debt" :-)
-- TP |
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| tonyp |
| Posted: Wed Oct 26, 2005 9:37 am |
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"William F Hummel" <wfhummel@comcast.net> wrote
[quote:07acd8a88a]I think you are confusing my remarks about the net financial wealth of
the private sector with individual wealth. Buying bonds does not
affect the net financial wealth of the private sector unless the
government is deficit spending. The individual buyer does not gain in
net financial wealth.
[/quote:07acd8a88a]
What is the "private sector" if not a collection of individuals?
And, does government issue bonds when it is _not_ "deficit spending"?
[quote:07acd8a88a]Income in one form or another is the source of individual financial
wealth. Do you have a problem with that?
[/quote:07acd8a88a]
Hell, no. I only said that "income" does not _equal_ "increase in financial
wealth", as a quantitative matter. I said that because you seemed to imply
that it _does_.
[quote:07acd8a88a]Inflation has many causes. One of them, but not the most important,
is an excess of liquid financial assets in the private sector. Far
more important are supply shortages (like energy products - oil and
gas) and monopolies (like medical items - drugs and doctor services).
[/quote:07acd8a88a]
Hmmm. I suppose some would argue that actual shortage of various
commodities, causing their dollar price to rise, is not "inflation" but just
the normal working of the free market. I'm not sure _what_ inflation is, to
be honest.
--TP |
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| William F Hummel |
| Posted: Wed Oct 26, 2005 11:17 am |
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On Wed, 26 Oct 2005 11:37:49 -0400, "tonyp" <tonyp@world.std.com>
wrote:
[quote:034a9db911]
"William F Hummel" <wfhummel@comcast.net> wrote
I think you are confusing my remarks about the net financial wealth of
the private sector with individual wealth. Buying bonds does not
affect the net financial wealth of the private sector unless the
government is deficit spending. The individual buyer does not gain in
net financial wealth.
What is the "private sector" if not a collection of individuals?
[/quote:034a9db911]
The net financial wealth of the private sector refers to the
_aggregate_ wealth of the private sector or, if you prefer, to the net
financial wealth of the "collection of individuals" comprising it. It
is equal to the total financial liabilities of the government, which
include Fed liabilities (the monetary base) and Treasury liabilities
(bills, notes, and bonds). In other words:
Government deficit == non-government surplus
Net financial wealth of an individual is quite different from the net
financial wealth of the private sector.
[quote:034a9db911]And, does government issue bonds when it is _not_ "deficit spending"?
Yes indeed. Most of the bonds issued by the Treasury simply cover[/quote:034a9db911]
maturing bonds, i.e. rolling over the debt rather than increasing it.
Deficit financing increases the debt, and thus the liabilities of the
Treasury.
[quote:034a9db911]
Income in one form or another is the source of individual financial
wealth. Do you have a problem with that?
Hell, no. I only said that "income" does not _equal_ "increase in financial
wealth", as a quantitative matter. I said that because you seemed to imply
that it _does_.
In effect what I said is that a pay check to an individual increases[/quote:034a9db911]
his financial wealth by exactly that amount -- until he spends it.
That applies to any other sort of income, such as interest, dividends,
rents, capital gains, royalties, etc.
[quote:034a9db911]
Inflation has many causes. One of them, but not the most important,
is an excess of liquid financial assets in the private sector. Far
more important are supply shortages (like energy products - oil and
gas) and monopolies (like medical items - drugs and doctor services).
Hmmm. I suppose some would argue that actual shortage of various
commodities, causing their dollar price to rise, is not "inflation" but just
the normal working of the free market. I'm not sure _what_ inflation is, to
be honest.
[/quote:034a9db911]
Inflation refers to a trend. The growing shortage of oil relative to
increasing demand obviously is driving up the price of oil which
affects the cost of most goods and services, and thus their prices.
Low-level inflation is a long-term-stable characteristic trend of a
free market economy. In contrast, deflation occurs sporadically and
usually in conjunction with depressions. |
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| Guest |
| Posted: Thu Oct 27, 2005 12:36 am |
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On Wed, 26 Oct 2005 10:17:16 -0700, William F Hummel
<wfhummel@comcast.net> wrote:
[quote:c04b328b3c]The net financial wealth of the private sector refers to the
_aggregate_ wealth of the private sector or, if you prefer, to the net
financial wealth of the "collection of individuals" comprising it. It
is equal to the total financial liabilities of the government, which
include Fed liabilities (the monetary base) and Treasury liabilities
(bills, notes, and bonds). In other words:
Government deficit == non-government surplus
[/quote:c04b328b3c]
I have exposed this nonsense many times, and Hummel has never been
able to answer. What he calls "net financial wealth" is mere sleight
of hand: the private bondholder's asset is recorded, but the private
taxpayer's corresponding liability isn't. So "net financial wealth"
is just the debt that taxpayers owe to bondholders.
-- Roy L |
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| Les Cargill |
| Posted: Thu Oct 27, 2005 9:24 pm |
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Guest
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royls@telus.net wrote:
[quote:985641e8db]On Wed, 26 Oct 2005 10:17:16 -0700, William F Hummel
wfhummel@comcast.net> wrote:
The net financial wealth of the private sector refers to the
_aggregate_ wealth of the private sector or, if you prefer, to the net
financial wealth of the "collection of individuals" comprising it. It
is equal to the total financial liabilities of the government, which
include Fed liabilities (the monetary base) and Treasury liabilities
(bills, notes, and bonds). In other words:
Government deficit == non-government surplus
I have exposed this nonsense many times, and Hummel has never been
able to answer. What he calls "net financial wealth" is mere sleight
of hand: the private bondholder's asset is recorded, but the private
taxpayer's corresponding liability isn't. So "net financial wealth"
is just the debt that taxpayers owe to bondholders.
-- Roy L
[/quote:985641e8db]
Government debt tends to roll over a whole lot more than private
debt. The taxpayers may "owe" it, but the chances of the note being
called (per increment of time) are much lower.
--
Les Cargill |
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