Ed Huntress wrote:
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Ed Huntress wrote:
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Ed Huntress wrote:
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Ed Huntress wrote:
Dollar bills do not constitute a savings account if you're the
federal government. Even if you stick it under the mattress, all
you're
doing is subtracting from and then adding to the money supply. You
aren't
actually saving something with asset value.

This must be incorrect because as soon as you transfer the dollar
bills
they have undeniable asset value!

Bill

Transfer whose dollar bills, from where to where, Bill?


As soon as you transfer the dollar bills from the "government savings
account" to another spending entity (you, me, GM, or China).

There's more to it than that. If you really, really want to get into it,
I'll try to hold up my end. But it's a mind-bender.

Hint: Taking dollars, or their equivalent, out of circulation has
negative
effects. You can ameliorate them. But recovering from your "amelioration"
when you give the dollars back to SS recipients causes a double-barreled
problem.

The net effect is the same as putting the excess into the general fund,
only
with different timing. And the different timing raises real hell.

As I said, only if you really, really want to get into it. d8-)

Ed, All I was saying (earlier) was that I disagreed with your comment that
"if the government took dollars out of circulation that they wouldn't be
saving something of value". The money supply is significant. You seem to
have backed away from that and instead noted that it could cause "timing
problems" (and I understand your concerns). I would merely suggest that
such problems would be far less worrisome to everyone concerned than the
sort of debt issues the government faces now.

There is little point in seeing how well we both understand basic
economics. You've translated the problem to a (subjective) fiscal one and
I am more interested in economics than politics. I'm still here if you
want to keep the ball rolling.

Bill

Ok, maybe it's worth getting into it. It provides some good insights into
the nature of money, the Treasury, and, if you want to complicate it
further, the Fed. But we don't need the Fed to deal with the simple version.

This is easier if you think of bundles of dollar bills, but you brought up
accounts, so let's do it with accounts at Treasury, which is not exactly the
real situation, but it's closer to reality. I'll make assertions and you can
challenge them, and then we'll explore your challenges. d8-)

Hypothetical: SS revenues this year are larger than outlays. So Treasury
takes in the extra SS money from individuals and puts it into an account.
You might think of it as an escrow account -- only it can't be, actually,
because there is no higher bank or other place they can deposit that money
to assure it's going to stay there. So they just put it in something like a
federal banking reserve account (let's not get the Fed involved here unless
you really want to). Treasury itself is keeping the account.

What has actually happened? The account is not a demand account -- it
doesn't "belong" to any individual or institution. Any claims against it are
theoretical; they occur in the future, and ONLY if the actuarial guesswork
was right. No one can withdraw from it on demand or use it as collateral.
It's no longer part of the money supply. It's dead numbers on a page.

Let's assume the actuarials are about right. The money, in the meantime, is
more or less in escrow. It's currency that's been *withdrawn* from the money
supply. It's not like an ordinary trust fund because no bank holding the
fund can use it as a reserve margin against which to make other loans. The
money has just been extracted from the US economy and can perform no
economic function at all. Thus, it has no asset value of any kind. It's just
ciphers in a ledger, and a promise that it won't be spent.

Extracting money from the money supply, if it's a significant amount (and SS
is significant) and if the economy is performing normally, is deflationary.
That might result in a pinch in the arm to the economy, or, if the economy
is slumping at the time, a kick in the groin. This is half of what I meant
by the timing issue. It could be a very bad time to be reducing the money
supply. But we're locked into it.

Treasury could ameliorate that by simultaneously increasing the money
supply. To do that, it buys bonds. Let's not go there for now. It just leads
in another circle, with more potentially bad timing. And it gets worse when
Treasury has to *decrease* the money supply to compensate, at some time in
the future.

Five years later, there is a SS shortfall, and Treasury has to pay some SS
claims from the "trust fund." The actuarial guesses came out right. Now,
where does that money come from?

Treasury has to expand the money supply to pay it out. For this example, say
they pay out the same amount as the excess they took in, five years ago.
There was no higher bank in which it was deposited; Treasury didn't buy
assets with it and store them somewhere. They just withdrew some part of the
bank balances of people paying into SS and wrote the numbers down. In other
words, they withdrew some of the money supply but there was nothing they
could do with it except to keep the numbers in a ledger.

So now Treasury has to expand base money, and, again, the timing could be
bad. If inflation is above the target rate (around 1% - 2%), the expansion
makes it worse. Bad news. There was no asset in the "trust fund" to sell, so
there is nothing else to do.

The money goes around in the same circle as it would if Treasury simply took
the excess revenue and put it into the general fund in the first place.
You're engaging in monetary maneuvers, not real deposits and withdrawals.
Your money isn't providing its normal function of enabling transactions in
the economy; it's dead numbers. Only now, what's happening is that monetary
policy is being dictated by the statutory requirements of the SS fund.
That's like feeding your dog by throwing foodballs at his dish. The poor dog
only eats when you score a hit.gg

Not wanting to complicate the issue by involving the Fed, and such things as
open-market operations, quantitative easing, and so on, my hypothetical
example isn't very real. But it keeps the focus on what the money actually
represents, where it comes from, and how a real "trust fund" would screw up
the timing of real monetary policy.

It makes the point, I hope, that money in any such escrow account has no
asset value. The whole thing is just a game of reducing and adding to the
money supply. When there is no higher bank to appeal to, and to which one
can make deposits and withdrawals, the buck stops at Treasury (and the Fed,
in reality).

Oops..here we are again! Do you think the ability to spend from this
"escrow account" has no value to an elected official and his or her
constituents? Adding to the money supply is a little like playing Robin
Hood. Roughly stated: Price = M/(Available Goods & Services).
Hence an increase in M, the money supply, raises prices for everyone.
I regard that as theft. The value of the escrow account is the
difference between the amount of goods and services that people could
purchase before the transfer and after the transfer. Prices go up and
everyone holding dollars or having a fixed salary incurs a loss. Some
people will now be priced out of their planned purchases (seems pretty
unfair to me).

You could introduce various multiplier effects but I think the simple
model above expresses my point. The value to spend money you don't have
is valuable. Whether is has "asset value" is a little like asking
whether being a member of congress has asset value. Surely both have
value. Always measuring in dollars just obscures the issue.

Bill



You could, with some imagination and careful thought, come up with ways for
Treasury to turn those deposits into real assets. But you're likely to run
into a series of unintended consequences if you do. You need a seller, and,
when you want to cash in, a buyer. Good luck. You're manipulating a sizeable
portion of the world's assets in this game, and the world may not want to
play. Then you're screwed.

Now, it's your turn to attack.g