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he economist as the key shows green represents the lowest levels of debt which countries are in green brazil russia india and china all four are doing well and three of the four are among the world s fastest growing economies according to this map from indexmundi in a world that relies on credit for growth the best growth is achieved when debt is not yet excessive so that debt may grow rapidly and eventually become excessive there must be a better way posted by the arthurian at 6 19 am 0 comments core concept validated again china from alwaysland the core concept of arthurian economics is that the cost of interest the factor cost of money to put it in terms adam smith might use today consumes so much out of wages and profits that our economy just doesn t work any more from ouch yuck gasp thud after world war ii the federal debt was large compared to private debt private debt was small and did not interfere with growth so the economy grew and over the next 40 years private sector debt grew until the cost of it started to interfere with growth since then economic growth has not been good except briefly in the late 1990s from another piece of the puzzle regarding the 1990s so we have a decline in credit use and an increase in the quantity of money and after 3 or 4 years of that we get a golden decade coincidence not in my book from a comment we have to change the policies that cause us to use credit for money most important we need policies that accelerate the repayment of debt after that everything else falls into place the fed can be less restrictive without creating inflation because the repayment of debt is an anti inflation policy from red shift here is what i know to be true the quantity of money reached a peak in 1946 and has been falling since the volume of debt pyramided on money hit bottom in 1947 and has been rising since got the picture not enough money and too much debt is the kiss of death if you want to prevent money from creating problems in your economy you have to have enough money and not a lot of debt now here s the situation in the u s and china the numbers are from the cia world factbook taken 14 april 2012 as tabulated in my 3am post google docs spreadsheet available posted by the arthurian at 5 00 am 0 comments private debt 2012 16 why do you think that why do you think it is the federal debt that hinders economic growth that s just silly it is private debt that hinders private sector growth a new use of credit creates an addition to spending and a boost to the economy but the equal and opposite effect is the drag on the economy resulting from the debt that was created by that use of credit it isn t magic we don t get something for nothing we get something when we borrow but in exchange we create debt a drag on the economy so if we go for 60 years borrowing more and more the debt just accumulates the drag from that debt accumulates too slowly but surely becoming an insurmountable obstacle to economic growth people say taxes are high and still the government has deficits so government spending must be excessive i disagree taxes are high and the government has deficits and small government as a rule is better than big government sure but there are other economic forces at play and other economic factors to consider taxes must be higher in china than they are here don t you think and the government must certainly be a bigger part of their overall economy but china has been growing like crazy for a long time and we have not there are other economic forces at play and other economic factors to consider other than federal spending and federal debt china has less private debt posted by the arthurian at 4 00 am 0 comments from your friends at cia economy china united states gdp purchasing power parity 11 29 trillion 2011 est 15 04 trillion 2011 est gdp official exchange rate 6 989 trillion 15 06 trillion 2011 est gdp real growth rate 9 2 2011 1 5 2011 est labor force 816 2 million 153 4 million unemployment rate 6 5 2011 est 9 1 2011 est budget revenues 1 646 trillion revenues 2 264 trillion budget expenditures 1 729 trillion 2011 est expenditures 3 604 trillion taxes and other revenues 23 6 of gdp 2011 est 15 of gdp budget surplus or deficit 1 2 of gdp 2011 est 8 9 of gdp 2011 est public debt 43 5 of gdp 2011 69 4 of gdp 2011 est inflation rate consumer prices 5 4 2011 est 3 2011 est stock of narrow money 4 599 trillion 31 december 2011 est 1 943 trillion 31 december 2011 est stock of broad money 13 52 trillion 31 december 2011 est 12 14 trillion 31 december 2010 est stock of domestic credit 10 72 trillion 31 december 2011 est 32 61 trillion 31 december 2009 est from the cia world factbook of course they provide two versions of gdp and don t tell me which one to use i looked up ppp but that went nowhere i went out with fido3 now fido2 and decided to go with the official exchange rate version as that is probably official eventually it occurred to me to see what numbers fred uses i typed china in the search box and found exchu the monthly china u s foreign exchange rate over on the side fred reported among the latest observations the value 6 3482 for the last month of 2011 the cia data are 2011 estimates 6 3482 is close enough for me and i found chngdpnadsmei nice huh the current price gross domestic product in china reported in billions of chinese yuans i divided that whole series by 6 3482 to convert it to dollars at the late 2011 exchange rate only the late 2011 gdp value would be accurate but that is all i need anyway the china gdp series only goes thru 2010 i m just looking at the last number and figuring it s close something over 6 trillion that s the official exchange rate number not the ppp number yeah i m going with that posted by the arthurian at 3 00 am 0 comments purchasing power parity from wikipedia the free encyclopedia in economics purchasing power parity ppp asks how much money would be needed to purchase the same goods and services in two countries and uses that to calculate an implicit foreign exchange rate using that ppp rate an amount of money thus has the same purchasing power in different countries the idea originated with the school of salamanca in the 16th century and was developed in its modern form by gustav cassel in 1918 the concept is based on the law of one price an example of one measure of law of one price which underlies purchasing power parity is the big mac index popularized by the economist which looks at the prices of a big mac burger in mcdonald s restaurants in different countries okay that s the setup now the punch line this index provides a test of the law of one price but the dollar prices of big macs are actually different in different countries this can be explained by a number of factors transportation costs and government regulations product differentiation and prices of nonfood inputs furthermore in some emerging economies western fast food represents an expensive niche product price well above the price of traditional staples i e the big mac is not a mainstream cheap meal as it is in the west but a luxury import for the middle classes and foreigners this relates back to the idea of product differentiation few substitutes for the big mac allows mcdonald s to have market power countries like argentina that have abundant beef resources see a structural underpricing in the big mac in other words the law of one price does not hold oh of course all the failures can be explained but none of the explanations can assert that the law of one price holds they can only explain why the law does not hold now if the law of one price does not hold and purchasing power parity is based on that law do you see where i m going with this posted by the arthurian at 2 00 am 0 comments wednesday april 18 2012 not enough foresight even in hindsight in a post titled not enough inflation paul krugman writes indeed a bit more inflation would be a good thing not a bad thing for one thing large parts of the private sector continue to be crippled by the overhang of debt accumulated during the bubble years this debt burden is arguably the main thing holding private spending back and perpetuating the slump modest inflation would however reduce that overhang by eroding the real value of that debt and help promote the private sector recovery we need meanwhile other parts of the private sector like much of corporate america are sitting on large hoards of cash the prospect of moderate inflation would make letting the cash just sit there less attractive acting as a spur to investment again helping to promote overall recovery i m happy to see krugman remind people that the debt burden is arguably the main thing holding private spending back and perpetuating the slump i can see that inflation reduces the burden of existing debt if wages go up that is and not just prices and if new additions to debt don t undermine the process i can see that calling it modest inflation makes it seem more reasonable i can see that inflation would tend to convince hoarders to come out of hoarding i do find it troubling that we seem to need a negative return to money to make investment more appealing but the main thing i see is that krugman is basing his policy suggestions on outcomes rather than on the problem that gave rise to those outcomes and he knows perfectly well what that problem is private debt there s no arguably about it posted by the arthurian at 4 00 am 1 comments tuesday april 17 2012 eventually there is no alternative when i first got on the internet i ran across an innocent sounding statement someone had distinguished between greenback dollars and account entry dollars and thought greenback dollars rare and therefore valuable the account entry dollars they thought would continue to grow and increase and inflate away while the greenback dollars would only grow in value it was a unique idea i ve probably presented it badly and fascinating immediately some cowboy misunderstood the innocent statement and with austrian bravado blew it out of the water naturally but the idea stuck with me and woke me up this morning after the gold standard had failed one time too many people invented the federal reserve to provide a more flexible monetary system eventually the printed dollar became a replacement for gold but if you mentally equate olden day gold with modern day central bank money the old and the new face an identical challenge that challenge is the creation of credit money by private banks under the gold standard no central authority had control over the quantity of money fdr s devaluation of the dollar to 32 ounce was an attempt at centralized control but it came late it worked only temporarily and fdr has still not been forgiven for doing it today the central bank has control over the quantity of money but the solution as with fdr is always to inflate the problem now as then is that the quantity of money be it gold or central bank issue becomes insufficient to support the quantity of private bank credit because of the growth of private bank credit given the option to inflate we inflate when private issues overwhelm central bank money the economy is hindered and the central bank responds by inflating the quantity of money to the extent that it outpaces the growth of private credit issue inflation of the base money can reduce the hindrance but the result is price inflation that is what happened during the 1960s and 70s then in the 1980s a new policy was established which controlled prices by undermining demand while still celebrating finance but it is not wise to mess with the forces of supply and demand and interest rates over the next thirty years worked their way down to zero whence they could fall no more and now the only solution our central banks can see to correct the imbalance between central bank money and private bank credit is to issue more central bank money thus quantitative easing both the problem and the solution today are just as they have always been the growth of private credit use and private debt the federal reserve will ultimately realize that increasing base money does nothing to restore economic vigor but only increases inflation and the threat of inflation at that point they will stop wikipedia a commercial bank that maintains a reserve account with the federal reserve can obtain notes from the federal reserve bank in its district whenever it wishes eventually the fed will refuse to issue greenbacks in exchange for account entry dollars eventually they will fail to honor their obligation to convert reserves into currency on demand eventually they will have no choice at that point the cowboy will be proved wrong and the innocent proved right but by then it will not matter it will be too late posted by the arthurian at 4 00 am 3 comments monday april 16 2012 if you do not look you can not see at wikipedia the u s public debt is the debt of the federal government as opposed to state and local governments it includes both debt held by the public which is included in fred s tcmdo as fgtcmdodns and intragovernment debt which is not part of tcmdo but is included in fygfd and also gfdebtn gfdebtn shows quarterly data but only goes back as far as 1966 fygfd only shows annual data but goes back to 1939 at first i didn t notice the late start of gfdebtn and used that data to produce this graph comparing public debt to other non public debt graph 1 the public debt as a percent of the rest of debt since 1966 wow it s all over the place the total public debt converted to billions relative to all the other debt in our economy and expressed as a percent but this is not the first time i ve looked at these graphs and the picture shown in graph 1 was not the picture i was expecting that s when i looked closer and noticed that the numbers don t start until 1966 btw 1966 is the year i graduated high school and i can still remember that far back heck i remember thinking the 66 pontiac gto was a dream car the price of gasoline back then was i don t know maybe 32 cents a gallon those days are gone pontiac is gone now too interesting thing about graph 1 despite 4 5 years of private sector deleveraging and despite 4 5 years of earth shattering federal deficits the level of public debt today the most recent level shown is no higher than it was in the mid 1990s just before the macroeconomic miracle and it is lower today than it was in 1966 public debt relative to all the other debt in our economy but 1966 has us already into the so called great inflation and approaching the end of the so called golden age graph 1 shows mostly troubled times for our economy so i did the graph over this time using fygfd to see as many years as possible graph 2 the public debt as a percent of the rest of debt this graph shows the same relation as graph 1 it just shows more years but you can see that the high point around 2010 appears on both graphs you can see that the high point of the mid 1990s appears on both graphs and yo...
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