So France bounces Sarkozy and Greece bounces them all. A morality play for US austerity proponents.

[girl gone mad]

17. "Money flows into that account via taxes and bond sales"

Last edited Mon May 7, 2012, 08:10 PM - Edit history (3)

Where did the money come from in the first place, Jeff?

The government has to spend money first before it can be taxed or "borrowed". That's sovereign fiat money mechanics 101.

Money is not simply printed - that would be massively inflationary, as in the Weimar republic. Instead, the government receives income from taxes, and any shortfall is funded by selling bonds.

No, government spending or "printing" is not massively inflationary. This is partly because the destruction of fiat via taxation acts as a check and drives demand for dollars, but also because our productive capacity is large and can grow naturally through population increases and technological innovation.

It's absurd to compare the US to the Weimar Republic. Weimar owed its debts in gold and foreign currencies, and as such, it was a merely a currency user, like a household or a business. Weimar also suffered a devastating decline in productive capacity. These are the two factors that led directly to Weimar's hyperinflation. Your analogy can never work and we would all be better pretending the words 'Weimar Republic' had not come up in this conversation.

False. Cash is only destroyed by the Federal Reserve, which is not the treasury. The Fed shreds money when it's worn out. If you used new bills to pay your taxes, those bills would return to circulation through the Federal Reserve system.

True, good condition dollars might be put back into circulation, but much of the money the IRS takes in is simply shredded. Good condition dollars are recirculated, not sent over to Treasury to be spent by Treasury. The electronic funds are erased from existence with the push of a button. If you like, you can imagine someone transfers these digital sums over to an account somewhere at Treasury and that the government couldn't spend if this act did not occur, but, come on... get serious, Jeff. We all know it doesn't really work this way.

False. The danger from deficits is the interest rate we have to pay on those funds. A high interest rate would create problems, because it would cost so much more to service our debt. One possible solution to a high rate would be to print more money, which would be inflationary. The other responses would be to raise taxes or cut spending.

Interest rates are not the issue. Both the long and the short rate can easily be managed by our central bank. Check out Japan, which has run massive deficits for two decades yet pays very low rates. I thought that the general knowledge of economics on DU had progressed far beyond these types of debates. You're flat out wrong here. Bond vigilantes do not exist for sovereign currency issuer bonds.

Printing money is inflationary under some circumstances (mainly full employment and max. productive capacity), and when those conditions are met, the government should start to look at the deficit and adjust tax rates and/or cut spending to help reduce the money supply.

Printing money is not inflationary under all circumstances, or we would be facing high inflation right now.

When any attempt to pass progressive legislation is met with "how do we pay for it?!?!!?!", you aren't going to get much progressive legislation. So raising taxes enables the progressive agenda you want.

Actually, the complaint is usually: "Democrats want to raise your taxes to pay for it!!11!"

Once people understand that we can invest in education, energy, infrastructure, jobs and pro-growth programs without raising taxes they are generally much more agreeable to the spending. Bush understood this concept. Why can't Democrats?