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MrBaggins
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quote:
Originally posted by Kidicious
In table II of that document interest on treasury securities is itemized as a withdrawl. You are saying that is just reported that way? Why? |
Table 2 is for transfers from accounts to an operating cash account. Its an accounting process, because real money is actually paid to remit the redemption of the treasury security. The federal government has a somewhat byzantine accounting methodology.
(Federal accounts)
If you notice further down in the originally discussed table, you'll see a line item for Public Debt Cash Redemp.(III-B) which is the actual dispersement to investors.
Last edited by MrBaggins on 18-03-2004 at 07:44
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MrBaggins
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* MrBaggins laughs
So you're saying that no money is created on remittance?
How do the government pay back the mature issues then? Its not taxes... they haven't paid a dimes worth of taxes towards treasury issues in years.
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Ned
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of Aptos, CA
Oct 1999
time: 21:34
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quote:
Originally posted by Kontiki
Well, Ned, MrBaggins is explaining it to you, so I don't feel the need to jump in and restate the same thing.
If you need more help, let's start here: Do you understand the mechanisms of monetary policy - that is, what actually happens behind the scenes that causes the end results? |
Yes. And I think that inflation is or was caused in the 1970's by keeping the federal funds rate at or below the rate of inflation. It took a long time of monetary discipline to get inflation under control.
This is one of the reasons that I think that interest rates, in particular the Federal funds rate, is a primary cause of inflation when this rate is set below the rate of inflation.
Today the Fed conducts open-market operations to set the Federal funds rate, which is remarkably different from what they used to do in the 1970s. Today, monetary policy controls inflation, leaving the issue of stimulus to fiscal policy.
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Kontiki
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Canada
Aug 2001
time: 00:34
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quote:
Originally posted by Ned
Yes. And I think that inflation is or was caused in the 1970's by keeping the federal funds rate at or below the rate of inflation. It took a long time of monetary discipline to get inflation under control.
This is one of the reasons that I think that interest rates, in particular the Federal funds rate, is a primary cause of inflation when this rate is set below the rate of inflation.
Today the Fed conducts open-market operations to set the Federal funds rate, which is remarkably different from what they used to do in the 1970s. Today, monetary policy controls inflation, leaving the issue of stimulus to fiscal policy. |
OK, but clearly there's some sort of disconnect when you say this:
quote:
the supply of money affects interest rates. Inflation is related to the price of goods and services. |
Maybe you should explain the mechanism as you understand it. I'm really not trying to be condecending here - perhaps typing it out will allow you to see how the money supply affects inflation. Just do the basics - don't worry about any historical examples or Japan's current situation.
Also, this is a problem:
quote:
If the economy has excess capacity and also has unemployment, demand increases can lead to increased production without inflation. Increasing demand does not always lead to inflation. |
That doesn't follow from basic supply/demand theory. Excess capacity simply means that production can be ramped up relatively quickly without major investment in plant. Even if there is excess capacity, an increase in demand will lead to an increase in prices due to profit maximization. There may be some lags, but an increase in demand almost always leads to an increase in prices, regardless of capacity.
A simple example: you and a friend make widgets. Not so long ago, there was a demand for 100 widgets a week for $20 a widget, and you could meet that demand with the equipment you have. But now the economy has weakened and you can only sell 50 widgets a week at $15 a widget. You have the means to make 100, but you only make 50 - so you have excess capacity. Since you only need to make 50, you and your friend only work part time - so you have unemployment (well, really underemployment, but it still works in this example). All of a sudden, demand picks back up to 100 widgets at $20 each. You're still within your capacity, but there has been price inflation. However, if demand picks up even more, then you will need to add to your capacity in order to meet it. The investment in equipment will mean that you need to charge even higher prices (which, luckily, the boom in demand allows for) - this is when inflation really takes off.
Bottom line - inflation is slower with excess capacity, but not non-existant.
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Kidicious
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Diety of Kidiverse
Mar 2003
time: 21:34
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quote:
Originally posted by Kontiki
That doesn't follow from basic supply/demand theory. Excess capacity simply means that production can be ramped up relatively quickly without major investment in plant. Even if there is excess capacity, an increase in demand will lead to an increase in prices due to profit maximization. There may be some lags, but an increase in demand almost always leads to an increase in prices, regardless of capacity.
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An increase in demand doesn't lead to higher prices when there is excess capacity in the short run. You have to realize that the laws of supply and demand only apply to a situation with full employment. When there is so much excess capacity efficiency lags, because average unit costs go up. Prices are lower when you can stretch your fixed costs over a large volume of production. When you are at full employment you are already operating efficiently and an increase in demand will cause inflation.
quote:
Originally posted by Kontiki
A simple example: you and a friend make widgets. Not so long ago, there was a demand for 100 widgets a week for $20 a widget, and you could meet that demand with the equipment you have. But now the economy has weakened and you can only sell 50 widgets a week at $15 a widget. You have the means to make 100, but you only make 50 - so you have excess capacity. Since you only need to make 50, you and your friend only work part time - so you have unemployment (well, really underemployment, but it still works in this example). All of a sudden, demand picks back up to 100 widgets at $20 each. You're still within your capacity, but there has been price inflation. However, if demand picks up even more, then you will need to add to your capacity in order to meet it. The investment in equipment will mean that you need to charge even higher prices (which, luckily, the boom in demand allows for) - this is when inflation really takes off.
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This depends on the assumption that you sell widgets for a lower price when there is less demand. In fact, your unit costs are likely to be higher, so you would probably keep the same price.
quote:
Originally posted by Kontiki
Bottom line - inflation is slower with excess capacity, but not non-existant. |
It probably is nonexistant, or you might get deflation if productivity has improved over the period.
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18-03-2004 06:14
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