coffee is good for you
"We exist in moments of gentle apocalypse" Roland Barthes
attention deficit...blog type thing
8 Feb 06
Macro economics for the non-economically inclined: the national deficit
Note: no peer review, and I am by no means an expert
The first principle to get comfortable with is the fact that for all intents and purposes there is a finite amount of U.S. money to be had.
When the government wants to spend more money that it has, it sells debt in the form of Treasury Bills, bonds, etc. This is fine in moderation, but can go overboard. Just imagine how long or frequently you would loan money to one of your friends. After a while you may start to see the loans as not all that good of an idea. How many i.o.u.’s do you want from that guy anyway. You may decide it a better option loan your money to your friends that have a better grasp of their household bookkeeping.
It follows then, that at some point the debt well will run out. However, all that well needs to do is slow in order for the effects of this policy to hit home. When the market goes soft for our government’s debt, the government will begin competing for the local money. This means that it raise interest rates to slow the borrowing within the nation. I.e. the loan on that house will not be so appealing, because you are competing with the government. Both of you want to borrow that money. Similarly, because of the competition for debt, those charge cards will reflect the cost of capital.
The cost of capital directly influences the economy as a whole. If it is relatively inexpensive for me to borrow money to start my own business, I will have relatively little to loose. If rates are low, I may be able to finance my college degree on loans, or take out that home equity loan, or buy a new car, etc.
As the cost of capital increases prices may rise to reflect the increased cost of business operations. This generally leads to a decrease in consumption of goods other than those ‘staple’ items.
So what, right? Well for the last few years per conventional wisdom, and more than likely the last 50 years by rigorous economic analysis, consumption has carried the national economy. If we stop buying stuff, the system will have to make a painful adjustment, and this is not a secret. Our livelihood so depends on consumption that we have an entire industry whose purpose is get to get us to buy things that we don’t need, or buy greater quantities of the things we do.
Next time…why giving people with money more tax breaks does not help the average American taxpayer, and maybe some select wisdom from the overseas bureau i.e. my pen pals in Tokyo.
Today I am thinking about....
our nations economy,
administrative behavior in general,
and how long my shoes will last if
i run 3 miles every other day
4 Feb 06: attention span / davos