Confirmed - you're actually just a terrible economist

thanks for the feedback. what's the specific problem you have here?

Well, you're not specifying what types of loans they would be. Any personal loan is categorized as high risk, with appropriately high risk weightings.

Second, you're printing money. This causes inflation. The inflation is not "temporary" because inflation is a self-fulfilling feedback loop. The largest indicator of current period inflation is prior period inflation. And it will be greater since the inflation will not be restricted to the asset market.

Third, you are absolutely crowding out the banking sector and will effectively destroy the private banking industry in this country.

he opened the thread, commented an insult at me, and then logged off within 60 seconds.

i would be offended, but the efficiency here is just outstanding.

Oh, and fourth, you're trying to fund current programs from a revenue stream, which typically pays out over the course of 7-10 years, and only from the profits on that? Which wouldn't be incurred until the very end of that time period? So basically, institute this to start paying for programs a decade from now.

At which point the rapid inflation and destruction of the private retail banking industry will necessitate massive increases in all those programs anyways

Well, you're not specifying what types of loans they would be. Any personal loan is categorized as high risk, with appropriately high risk weightings.

- that's fair, home equity and mortgage loans would probably be a good place to start, though since banks have maintained fairly consistent profits off of even personal loans, I'm not sure it'd be impossible to do the same with government. Plus, it'd also place more burden on rating companies to be accurate, and with a direct government link to the market, subprime loans like in 2008 could be more easily weeded out.

Second, you're printing money. This causes inflation. The inflation is not "temporary" because inflation is a self-fulfilling feedback loop. The largest indicator of current period inflation is prior period inflation. And it will be greater since the inflation will not be restricted to the asset market.

- this is where you're losing me. i take out a 6 months personal loan of 1000$ and must pay 1 installment of 1100$ at the end of the 6 months (weird ass loan, but let's work with it)

the initial transfer of money inflates the money supply be 1000$. this is true.

but after the 6 months, i must have paid that 1000$ off, plus another 100$. thus the government can use 100$ for social spending, and take the other 1000$ out of the economy. thus there'd be a deflationary effect from the 1000$ proportional to the initial entry of 1000$, with a redistribution from the citizen to government of 100$.

wouldn't this be temporary quantitate easing?

[i'll concede if the government were to create a permanent series of loans, there would be an immediate inflationary effect, though if that dollar value were capped, then it would be a one time inflationary effect, unless if - once again - i'm missing something]

Third, you are absolutely crowding out the banking sector and will effectively destroy the private banking industry in this country.

- yes there'd be crowding out to an extent, but this by no means would destroy the baking industry. the US gov't would be just as liable to the FED as any other bank. it'd be sticking another large chain right into the middle of things, though we've done that with plenty of other markets, where the gov't has been beaten down (the post office)

if your worry is about corruption, that's a valid worry, and the only immediate one i see anyways

Oh, and fourth, you're trying to fund current programs from a revenue stream, which typically pays out over the course of 7-10 years, and only from the profits on that? Which wouldn't be incurred until the very end of that time period? So basically, institute this to start paying for programs a decade from now.

- NO NO NO! I'm just saying add it to our budget. we can still have taxes, of course. i'm just saying, could this be something that reduces our financial problems? we've had plenty of deficits, could this be a way to start closing the gap and trying to face the debt?

At which point the rapid inflation and destruction of the private retail banking industry will necessitate massive increases in all those programs anyways

- once again, this wouldn't be inflation building upon itself. once the loan is paid off, ONLY the profits of that loan are used again.

if only 10,000$ of loans are to be made at that time, then only the 10,000$ will at most be causing inflation. in theory the gov't could do this for a year, stop, burn that money, and keep the profits.

So, I am coming from a more privileged position than you on this one. I am a federal bank regulator. This would destroy the private banking industry. Do take my word on this. I cannot say more than that.

So, I am coming from a more privileged position than you on this one. I am a federal bank regulator. This would destroy the private banking industry. Do take my word on this. I cannot say more than that.

- alright, i'll take your word on it, i'm not nearly experienced enough in the world of banking

but can you clarify what you meant by

"The inflation is not "temporary" because inflation is a self-fulfilling feedback loop."

because i'm trying to understand here. i print 100$, loan it out. they pay me back 110$, and i destroy 100$. isn't this just a redistribution of 10$?

or is it that the value of the 100$ immediately shrunk whenever i printed that extra 100$, so you paying me 10$ had less value to you? but wouldn't that be counteracted by me later destroying the 100$, thus growing the value of the 10$ profit proportionally?

And you're really not getting inflation dynamics. Download a bunch of Fred data. Inflation (PCE), oil prices, GDP growth, GDP lag, inflation lag, consumer sentiment, business sentiment....That should be enough. Run a regression in STATA on it. The biggest coefficient will be lagged inflation.

If you have high inflation in one period, people and businesses will *expect* that inflation to continue. They will spend more. This spending drives further inflation. Not to mention the fact that 1) The terms you describe are ridiculously short. If you set the payment date at 6 months, a) You won't collect much interest and b) Default rates will be ridiculously high. Anything in that timeframe is covered by a line of credit, which is a whole different product. Also 2) As soon as that principal is repaid, you're gonna lend it back out again! What's "temporary" about that?

If you have high inflation in one period, people and businesses will *expect* that inflation to continue. They will spend more. This spending drives further inflation.

- ok, i understand this, although once the initial 10000$ has been loaned out, there will be no more loans. the expectation of further inflation will lead to more demand which will spur on the economy, though soon the growth of the economy would exceed growth in the money supply, as no more loans are going out.

I'd imagine it to be like an S-curve for populations given more resources; it'd exceed the new carrying capacity, then oscillate around the new ceiling.


Not to mention the fact that 1) The terms you describe are ridiculously short. If you set the payment date at 6 months, a) You won't collect much interest and b) Default rates will be ridiculously high. Anything in that timeframe is covered by a line of credit, which is a whole different product.

-- well of course it would be a longer time frame... that was purely an example


Also 2) As soon as that principal is repaid, you're gonna lend it back out again! What's "temporary" about that?

-- i already said that wasn't temporary, though a cap on the amount you loaned out would limit the total effect that you directly caused. also, there would be every possibility for a total shutdown of the system, in which case all that money would be destroyed.

for my earlier comment on an S curve, it'd fall back to initial pre-loan levels (adjusted for outside factors of inflation)

For it to be large enough to sufficiently drive the revenues needed to fund programs off of the profit, you're talking....Hundreds of billions of dollars in loan volume needed. Though this would be a little different than what I'm used to, I suppose, since the cost of funds is zero.

Still, you're talking a direct injection of probably 2-3% of GDP into the economy. The inflation from that will be significant, once you run it through the money multiplier.

As far as this cap, as soon as you fall under the cap, you'd loan out money to hit the cap again, right? Is that not permanent?

For it to be large enough to sufficiently drive the revenues needed to fund programs off of the profit, you're talking....Hundreds of billions of dollars in loan volume needed. Though this would be a little different than what I'm used to, I suppose, since the cost of funds is zero.

-- also the more i think about it, the more i realize the gov't would have significant advantages and a slew of different natural ways they'd crowd out private banking

Still, you're talking a direct injection of probably 2-3% of GDP into the economy. The inflation from that will be significant, once you run it through the money multiplier.

-- well it depends entirely on how much you want to fund, though most significant quantities would probably have to be large when you're dealing with loan rates



I guess the original purpose of this thread kind of draws back to this:

can the government effectively increase revenue, without placing a burden on the taxpayer?

surely if there is such a way, it'd have to be government having transactions with people, but that would simply be hurting competition in any given market.

@gold

do you have any ideas? if clearly not in banking, i mean

"As far as this cap, as soon as you fall under the cap, you'd loan out money to hit the cap again, right? Is that not permanent?"

1. yes, i said that. the cap would be the permanent increase, just like my example with an S-curve - it requires a solidified increase. however, it wouldn't be constantly inserting new money, it'd be recycling the same money (while subtracting profits)

2. this could be a specialized offer, that would only be offered for a one year period. after you're locked in, then no more loans are given out, and once the principle is re-obtained however many decades later, it is destroyed and profits are kept.

"can the government effectively increase revenue, without placing a burden on the taxpayer?"

No

oh well thanks for the answer i guess... so about that 20 trillion dollar debt, i'm going to have to write an iou alright mate?

JamesYanik, you've reinvented the government bond. Which is good thinking, don't get me wrong, but...those "Buy War Bonds" WWII posters are about as close as government has ever come to being funded by bonds, and it wasn't close. Like, at all.

Goldfinger is right, you're a terrible economist.

So, you want to sell bonds to the public and borrow to fund government services. If, however, the government doesn't tax, how then does the government repay the loans to the public? Without that, why would anyone buy a bond that won't be repaid ever?

If alternatively you are suggesting that money being used by people be considered a loan from the government, then that's just a wealth tax.

@Lethologica

actually it's opening up Gov't to loans... so it's the opposite. but yeah, it's a difficult problem i'm trying to work around

however, that's an interesting point. Gov't bonds are already a part of the market, yet they don't destroy the market they're within.

of course... the reason for that is they're the safest investment on earth (other than swiss chocolate)

but there's no upside to a "safe" loan, if anything you'd want your debts to vanish

@Ogion

wow.

that is NOWHERE NEAR what i was talking about. did you JUST read Leth's comment?
I'm trying to fund a way - ALONGSIDE taxation - to life the burden off the taxpayer.

Since the government sells bonds and securities, why couldn't they take on loans as well?

THAT was what I was working with. so let's break down YOUR comment.


"Goldfinger is right, you're a terrible economist."

he says, misunderstanding the OP

"So, you want to sell bonds to the public and borrow to fund government services."

NO LITERALLY NO. NO NO NO NO NO. NEVER SAID THIS. NOPE. NUH-UH. NOT TRUE. FALSE. WRONG. BAD OGION.

STOP

STOP

STOPPPPPP MISQUOTING ME.

BAD

BAD

BAD

I said, we're taking on loans, we GIVE people money, they give back at a higher rate. thus the quantitative easing problem (unless if we USED taxpayer/bond money)


"If, however, the government doesn't tax,"

I NEVER SAID THAT

NOPE

NOPE

NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO

I said, this would HELP relieve the burden of taxation. NOT replace it.

STOP MISQUOTING ME

"how then does the government repay the loans to the public?"

NOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO
NOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO
NOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO
NOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO
NOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO
NOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO NOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO

the taxpayer must repay THEIR debts, from money the GOV'T loans TO them.


"Without that, why would anyone buy a bond that won't be repaid ever?"

IT IS NOT A BOND
IT IS NOT A BOND
IT IS NOT A BOND
IT IS NOT A BOND
IT IS NOT A BOND
IT IS NOT A BOND
IT IS NOT A BOND
IT IS NOT A BOND
IT IS NOT A BOND
IT IS NOT A BOND
IT IS NOT A BOND


"If alternatively you are suggesting that money being used by people be considered a loan from the government, then that's just a wealth tax."

oh sweet god... this is nothing like what i said


OGION STOP MISQUOTING ME FOR GOD'S SAKE

Maybe if you learned to write intelligibly people would understand you better

@Ogion

WHAT?

did you read the OP?

because @goldfinger had legitimate problems with it, but he understood it FINE. his is not me being unintelligible,

YOU are just being lazy. I'll bet you only read Leth's comment, and attacked me off of that.

I was not writing unintelligibly, get your head out of your ass.

this*

(of course i have a typo in THAT sentence) :\

JY, you're misunderstanding inflation.

Using your example, lets say the gov't prints $100. You pay back $110 in six months. So far, so good. But presumably you took out that loan for a reason - business expenses, car, home, major purchase, etc. Even though you paid back $110, that other $100 was still spent and will continue to circulate.

So, you're suggesting the government become a commercial bank. I suppose the government could actually do all kind of things to generate profits to funds government activities, but I can see politically it'd be toughsince banks don't want the competition. Look at the resistance the public option ran into

The other is scale. Profits from the entire banking sector run somewhere both of $100 billion dollars. The federal budget is $3.8 trillion. So even if you nationalized the entire banking sector and charged the same outrageous fees, you'd make up maybe 4% of the budget.

@2WL

there's a 10,000$ economy.

i print 100$

i loan 100$ expecting 110$ in return

the economy is now at 10,100$

that 100$ is spent.

1 year later i get the 110$

the economy is still at 10,100$

I take the 100$ and burn it, and keep the 10$

Economy is at 10,000$ (same as before)

I have 10$.


the PROBLEM here, is that the expectation of more inflation, causes in itself more demand, and thus expands inflation. Of course with that having been said, the extent of this depends upon the QE.

@goldfinger made it pretty clear, that for any substantial gains, QE would have to be such a large part of GDP, it'd have massive effects.

However, i do not "misunderstand inflation"

it doesn't matter whether or not "that other $100" is still circulating, because i've removed (burned for this example) a different 100$ to maintain purchasing power parity

the QE will be temporary

OR

you have a one time inflationary effect, but cap it off. THEN you only loan out up to maximum the cap. there are size problems with this too though.

Yes, printing money stokes inflation so you can't just create money without causing damage.

In theory you could find the government from profits on businesses and many countries control large state owned business sectors. I'm not sure that it's sell politically.