Re: Re: Re: Re: Concerning Wynne Godley
Greetings Economists, C. Gregory writes, Christian Gregory I get that. Doyle In reference to what Michael Perelman was writing about bonds being withdrawn as debt is paid off. C. Gregory continues, Christian Gregory, I don't get why the disappearance of those assets automatically means that the wealth once held in them becomes a liability. Is it assumed that turning treasuries into cash amounts to a debit or consumption/investment? Doyle Money in bonds increases. Money held in the hand is spent. thanks, Doyle
Re: Re: Re: Re: Concerning Wynne Godley
christian a. gregory wrote: I get that. I don't get why the disappearance of those assets automatically means that the wealth once held in them becomes a liability. Is it assumed that turning treasuries into cash amounts to a debit or consumption/investment? As the old Treasury debt matures, the households have to do something with the money. EIther there has to be a fresh issuance of debt, or old debt has to be bought (raising its price), or the cash could be redeployed into another asset class, or the money could be spent. A new liability is only one possibility. Doug
Re: Re: Re: Re: Re: Concerning Wynne Godley
someone wrote: Imagine that the households hold large amounts of government debt as assets. Other things being equal, if the government runs surpluses, then those assets disappear. Christian Gregory writes: I get that. I don't get why the disappearance of those assets automatically means that the wealth once held in them becomes a liability. Is it assumed that turning treasuries into cash amounts to a debit or consumption/investment? when the gov't buys Treasury bills, notes, or bonds, it isn't creating "debits" or destroying assets. Rather, it's reducing the supply of risk-free assets, pushing people to buy more risky assets (though it benefits the current holders of such bonds). (That's risk-free as long as the US government isn't going to go broke. It's also ignoring the risk inherent in long-term bonds (even those issued by the US government, i.e., the capital gains that hit if you have to sell when bond prices are down.) These days, many companies use T-bills as if they were money, so the amount of liquid assets that pay interest is being reduced. However, the fact that the gov't has been reducing the supply of long-term bonds first means that the latter isn't important yet. Jim Devine [EMAIL PROTECTED] http://bellarmine.lmu.edu/~JDevine
Re: Re: Concerning Wynne Godley
At 09:35 AM 06/24/2000 -0700, you wrote: Godley uses the accounting identity that the private financial balance, the trade balance and the gov't balance (written as a deficit) have to sum to zero. I take this to be a restatement of the basic macro identity S - I = (G + TR - TA) + NX. No? This suggests that public sector surpluses add to private sector liabilities. I can understand that a surplus destroys certain kinds of wealth (ie govt debt), but I don't get how that becomes a balance sheet liability for the private sector. There's a missing assumption here. He's assuming that the economy expands the way that the Office of Management and Budget assumes it does. (He also makes other growth assumptions.) Then, given the level of GDP growth (and thus a specific level of GDP at any time), any specific government surplus (G + TR - TA 0) and trade deficit (NX 0) implies a specific level of a private deficit (S I). The former does not create the latter. Rather, the former requires the latter in order to keep the growth going. And private deficits -- i.e., debt accumulation -- cannot continue forever. Jim Devine [EMAIL PROTECTED] http://bellarmine.lmu.edu/~JDevine
Re: Concerning Wynne Godley
Michael P wrote a while ago: "Wynne's work is based on basic accounting principles and so has the potential of being understood, and maybe even convincing. He shows what's behind the boom, and shows what would have to occur for it to continue, and that such a scenario is unlikely, but even trying it will be dangerous. The work also has important policy implications. Abolish the surplus, for starters." I have a question about the accounting principles, though. Godley uses the accounting identity that the private financial balance, the trade balance and the gov't balance (written as a deficit) have to sum to zero. I take this to be a restatement of the basic macro identity S - I = (G + TR - TA) + NX. No? This suggests that public sector surpluses add to private sector liabilities. I can understand that a surplus destroys certain kinds of wealth (ie govt debt), but I don't get how that becomes a balance sheet liability for the private sector. Christian
Re: Re: Re: Concerning Wynne Godley
Imagine that the households hold large amounts of government debt as assets. Other things being equal, if the government runs surpluses, then those assets disappear. I get that. I don't get why the disappearance of those assets automatically means that the wealth once held in them becomes a liability. Is it assumed that turning treasuries into cash amounts to a debit or consumption/investment? Christian
Re: Re: Re: Re: Concerning Wynne Godley
I must not have made myself clear. Imagine that a certain number of gov't bonds come due each year. Once the gov't goes into a surplus, bonds expire without being replaced by new bonds. So, household holding of gov't debt falls -- ceterus paribus. "christian a. gregory" wrote: Imagine that the households hold large amounts of government debt as assets. Other things being equal, if the government runs surpluses, then those assets disappear. I get that. I don't get why the disappearance of those assets automatically means that the wealth once held in them becomes a liability. Is it assumed that turning treasuries into cash amounts to a debit or consumption/investment? Christian -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
Re: Re: Re: Re: Concerning Wynne Godley
It becomes a liability, I guess, only in the sense that it is a subtraction from the previous credit. "christian a. gregory" wrote: Imagine that the households hold large amounts of government debt as assets. Other things being equal, if the government runs surpluses, then those assets disappear. I get that. I don't get why the disappearance of those assets automatically means that the wealth once held in them becomes a liability. Is it assumed that turning treasuries into cash amounts to a debit or consumption/investment? Christian -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
Concerning Wynne Godley
Forwarded from Mat Forstater I think Wynne's work is extremely important. Let's think about his study in the context of Gore's promise yesterday or the day before to continue and even accelerate along the path of fiscal austerity, while boasting that running surpluses and paying down the debt is at least partially responsible for the economic expansion of the nineties. What Wynne demonstrates is that given the trade deficit, continued expansion with budget surpluses requires increasing debt-financed consumer spending at an increasing rate. The non-government domestic sector deficit is now approximately equal to 5.5 percent of GDP--far and away the largest such deficit the United States has seen in the post-war period. History tells us that even a fraction of this kind of private sector deficit and thus debt load is associated with rough times ahead--is unsustainable, and likely to bring on crisis. Wynne's work is based on basic accounting principles and so has the potential of being understood, and maybe even convincing. He shows what's behind the boom, and shows what would have to occur for it to continue, and that such a scenario is unlikely, but even trying it will be dangerous. The work also has important policy implications. Abolish the surplus, for starters. -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
