Stephen Harper knows alot...

[Smallc]

No one is proposing running infinite deficits (rven though it is theoretically possible). The reality is that the Canadian economy is in as bad of a place as it was in 2009. Spending money now is not a bad idea.

[Wilber]

That depends. The Bank of Canada can lend money to the government if need be.

And where does the BoC get that money?

[Smallc]

And where does the BoC get that money?

Debt is the creation of new money (it didn't exist before). Without increased economic activity to back it, devaluation and inflation occur....and that would be the procedure with out of control debt.

We're not talking about that.

[Wilber]

Debt is the creation of new money (it didn't exist before). Without increased economic activity to back it, devaluation and inflation occur....and that would be the procedure with out of control debt.

We're not talking about that.

Debt is using someone else's money.

So what are you talking about?

[Smallc]

Debt is using someone else's money.

Only a portion of the money actually exists. That's why you ended up with banks leveraged at 40:1.

[TimG]

Only a portion of the money actually exists. That's why you ended up with banks leveraged at 40:1.

You don't understand how fractional reserve banking works. Banks create money with loans but they create an *asset* and a *liability*. i.e. if a bank loans someone $10,000 and they buy a car the seller will deposit the money received back into the bank which means the bank has to pay interest on the money they just created. If someone can't pay back a loan the bank still has to pay interest on that $10,000 which is why banks can go bankrupt if they have too many bad loans. Edited January 26, 2016 by TimG

[Smallc]

The central bank can do this by creating new money. It devalues the entire money pool, but it is possible. This is all very theoretical though, since no one is talking about a government debt bubble in Canada.

[Wilber]

The central bank can do this by creating new money. It devalues the entire money pool, but it is possible. This is all very theoretical though, since no one is talking about a government debt bubble in Canada.

Until it happens. It's not theoretical at all, you either create more money, thereby devaluing it, or you borrow it and pay bond holders interest. No one is going to lend money to a government which is intentionally devaluing its currency, unless it is repaid in a currency it has confidence in. You seem to think governments get some sort of free ride when it comes to debt.

[TimG]

The central bank can do this by creating new money. It devalues the entire money pool, but it is possible. This is all very theoretical though, since no one is talking about a government debt bubble in Canada.

Only because we have had 20 years of governments that treated balance budgets as a religion.

The BoC has a very limited ability to buy debt when inflation is very low. As soon as inflation picks up it has to stop which is likely to happen since a dropping dollar leads to inflation. IOW, there is no way the BoC can bail out irresponsible governments. Balancing spending with revenue is the only option.

[Smallc]

No one is talking about growing the debt as a percentage of GDP. That's why I haven't yet heard an economist worry.

[Wilber]

No one is talking about growing the debt as a percentage of GDP. That's why I haven't yet heard an economist worry.

Ah the magic debt to GDP ratio again. The weasel words that explain everything. GDP declines or remains stagnant, the debt doesn't go away. In government fantasy land, it never goes away, we just pay for it for eternity.

Edited January 26, 2016 by Wilber

[Wilber]

smallc

On a status update, you made a comment about how I brought reality to the topic when I explained how the 400 million in Iranian assets would have incurred over 2 billion in interest, just invested in US T-bills since 1980. The same goes for debt, 400 million borrowed by the US government by issuing T-Bills would have cost US taxpayers 2 billion in interest with no end in sight because there is no intention to pay it off. Inflation would have accounted for just over 1 billion but that leaves another billion for which US taxpayers have received nothing at all except an obligation to keep paying. All to borrow 400 million. You may consider that good economic policy. I don't.

[Smallc]

That wasn't me - and I agree with what you're saying, and I feel it lacks context.

[Wilber]

That wasn't me - and I agree with what you're saying, and I feel it lacks context.

It was you but unfortunately it is gone now. What context is it lacking?

[Smallc]

It was you but unfortunately it is gone now. What context is it lacking?

It honestly wasn't me. I don't like debt and deficit. At the current moment, I understand it, and theoretically I understand it.

[msj]

It honestly wasn't me. I don't like debt and deficit. At the current moment, I understand it, and theoretically I understand it.

I'll leave this here for you as I think you will understand these 5 macro myths: https://www.gmo.com/docs/default-source/research-and-commentary/strategies/asset-allocation/market-macro-myths-debts-deficits-and-delusions.pdf?sfvrsn=2

I particularly like the point about debt being both an asset and a liability.

Something debt/deficit hawks forget and/or do not comprehend.

[Charles Anthony]

Folks,

This thread is temporarily locked.

This is some of the most astonishing thread drift that I have ever encountered.

Anybody who wants to continue this same topic while we figure out what to do with this mess is welcome to do so. Call it something like Stephen Harper knows a lot more.... and we will merge whatever can be salvaged from this thread.