Re: Refuting supply-side economics

From: William P.F (catastrophic_success_at_wh.con)
Date: 09/18/04 

Date: Sat, 18 Sep 2004 01:40:22 GMT

On Fri, 17 Sep 2004 18:20:12 GMT, William F Hummel
<wfhummel@comcast.net> wrote:

>On Fri, 17 Sep 2004 15:53:48 GMT, William P.F
><catastrophic_success@wh.con> wrote:
>
>>On Tue, 14 Sep 2004 03:58:16 GMT, William F Hummel
>><wfhummel@comcast.net> wrote:
>>
>>>Since the Treasury sells securities in small amounts frequently in
>>>order to avoid a temporary shortage of loanable funds, how can there
>>>be any significant effect on dollars available for private sector
>>>investment?
>>
>>Because due to the increasing level of debt the cumulative effect of
>>all the sales will be that eventually the treasury will drain the
>>market off of investable dollars.
>
>Except for a brief on-budget surplus in 1999 and 2000, Treasury debt
>has been growing steadily for over 40 years. In 1962 the debt held by
>the public was $248 billion. Today it is over $4,000 billion. How
>long will it take to drain the market of investable dollars?
>

We should see the first effects of that in the next few years. The
growth of the debt will exceed the that of GDP and when the size of
the debt will get to a point that investors will not be willing to
accomodate the extra demand with these lower rates. There are a lot of
things that will pile on more debt in the next few years; the baby
boomers will start to retire, more entitlements coming online in the
next couple of years like the prescription drug for seniors, the
effects of the tax cuts are not fully reflected in the numbers as many
of those tax cuts have still not kicked in and last but not least the
cost of the war. Not to mention that currently short term rates are
below inflation an anomaly that cannot last forever unless economic
theory is fundamentaly flawed and every interest rate increase also
increases the cost of servicing the debt.
As the amount of money needed to service the debt grows faster than
GDP interest rates will have to rise even more. It's either that or
Greenspan keeps printing money in which case the dollar becomes trash.

>>Hence the higher interest rates.
>
>While the debt quadrupled in the twelve-year period 1981 to 1992,
>interest rates trended downward.

Any meaningful comparison in this regard will have to be done with the
real interest rate not the nominal one.
Anyway, are you saying that high deficits and debt levels do not
affect interest rates?

>Interest rates are lower today than
>they were when Dubya blew the lid off. Where are the higher interest
>rates you are talking about?
>
Again check the real rate of return. I am sure if you do your
conclusions will not be as clear.

>>Now in our case this has not happened (yet) for a couple of reasons.
>
>What is "our case"?

The USA. Duh!
>
>>First Greenspan has been expanding the money supply aggressively, and
>>second our trade partners are willing to reinvest their trade
>>surpluses in treasury bonds.
>
>Our trading partners love to accumulate US Treasury bonds because they
>are denominated in the world's reserve currency.

Well yes, so far.

> And they will
>continue accumulating those bonds as long as they succeed in
>maintaining their trade surpluses with the US.
>
If that premise was right then the world would have jumped at the
chance to accumulate Argentine peso denominated debt since it ran a
huge surplus with that country and therefore Argentina would have
never defaulted on their debt. All it would have to do would be to
just print more pesos.

>>It's only a matter of time before market
>>fundamentals put an end on these, forcefully probably.
>>
>What "market fundamentals" do you have in mind?
Supply and demand. Is that fundamental enough for you?

wpf

______________

Relevant Pages

  • Tippiing points
    ... How large does US debt have to become before people start to doubt ... the ability of the US to pay off treasury bonds and such? ...
    (rec.sport.football.college)
  • Re: nper
    ... years will it take her to accumulate enough to liquidate the debt? ... NPER and got an error. ...
    (microsoft.public.excel.worksheet.functions)
  • Re: Tippiing points
    ... the ability of the US to pay off treasury bonds and such? ... to call in the debt, ultimately they screw themselves in the ...
    (rec.sport.football.college)
  • nper
    ... years will it take her to accumulate enough to liquidate the debt? ... NPER and got an error. ...
    (microsoft.public.excel.worksheet.functions)