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Posts Tagged ‘national debt

“O Gold! I still prefer thee unto paper”*…

 

Gold-coins-e1561933265634

 

The once-fringe fantasy of a return to the gold standard is creeping back into the mainstream.

It has long been dismissed as a fool’s errand, on par with abandoning the Federal Reserve and other trappings of the modern economy. Mainstream economists deride it almost without exception. Reintroducing the gold standard would “be a disaster for any large advanced economy,” says the University of Chicago’s Anil Kashyap, who connects enthusiasm for it with “macroeconomic illiteracy.” His colleague, Nobel laureate Richard Thaler, struggles with its very underlying principle: “Why tie to gold? Why not 1982 Bordeaux?”

Yet the idea that every US dollar should be backed by a small amount of actual gold is more popular than economists’ opinions might suggest. Advocates include members of Congress and president Donald Trump. Enthusiasm for a return to the gold standard has become more prominent since Trump’s most recent nominees to fill the vacant Federal Reserve governorship have endorsed a return. The first two—Herman Cain and Stephen Moore—both dropped out of consideration, but the third, economist Judy Shelton, announced… in a Trump tweet, may be the most ardent in her support

What exactly is the gold standard, and what would it mean if it were re-established? Timely questions: “The quiet campaign to reinstate the gold standard is getting louder.”

* Lord Byron

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As we ponder the pecuniary, we might recall that it was on this date in 1795 that James Swan (who had financed privateers during the Revolutionary War, and used some of his proceeds to support the Continental Army) refinanced the national debt of the United States– $2,024,899 in obligations to the French government– by assuming them personally, at a higher interest rate; he then sold them off to private investors in the U.S. and Europe.

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Gilbert Stuart’s portrait of Swan, 1795

source

 

Written by LW

July 9, 2019 at 1:01 am

“I’m living so far beyond my income that we may almost be said to be living apart”*…

 

The U.S. national debt is once again raising alarm bells. Federal borrowing from outside investors expanded rapidly over the past decade, totaling more than $15 trillion in 2018, and it is projected to grow even faster over the next ten years under current law. Major budget legislation signed by President Donald J. Trump, along with continued growth in entitlements and higher interest rates, will see the debt nearly double by 2028 [PDF], coming close to the size of the entire U.S. economy.

If the debt continues to grow at an unsustainable level, it could expose the country to a number of dangers, economists say. In the extreme, the risk rises that Washington’s lenders, many of whom are foreign, could suddenly lose confidence, demand higher interest rates, and potentially trigger a fiscal crisis. Short of that, the rising debt could gradually squeeze discretionary spending and deny the country tools it needs for security and economic stability. Bringing the debt into check, experts say, will likely require politically difficult decisions to either curb entitlement spending, significantly raise taxes, or both…

A backgrounder from the Council on Foreign Relations: “The National Debt Dilemma.”

It should be noted that there are those who disagree with CFR (and the many others) who see the need to bring the deficit into balance via reduced spending and/or higher taxes: “The Radical Theory That the Government Has Unlimited Money.”

* e e cummings

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As we parse “prudence,” we might send carefully-calculated birthday greetings to Franco Modigliani; he was born on this date in 1918.  An economist, he originated the life-cycle hypothesis, which attempts to explain the level of saving in the economy, suggesting that consumers aim for a stable level of consumption throughout their  lifetime (for example by saving during their working years and then spending during their retirement)– for which he was awarded the Nobel Prize in Economics in 1985.

Among his other accomplishments, he initiated the Monetary/Fiscal Debate when he (and co-author Albert Ando) wrote a scathing critique of an early 1960s paper by Milton Friedman and David Meiselman.  Freidman and Meiselman had argued (in effect) that monetary policy was the only effective tool in managing an economy; Modigliani and Ando pointed out flaws in their analysis and made the case for fiscal measures (effectively, government spending) as equally-effective tools.  The debate– known by the antagonists’ initials as the AM/FM Debate– rages to this day.

 source

 

Written by LW

June 18, 2018 at 1:01 am

Book ’em, Danno…

Bulgarian designer Mladen Penev reminds us that books engage us in uniquely powerful ways.  See the photo essay in full at Toxel.com.

As we renew our library cards, we might recall that it was on this date in 1694 that a Royal Charter was granted to The Governor and Company of the Bank of England– known today simply as “the Bank of England.”  Scotsman William Paterson syndicated a £1.2 million loan to the then pecuniarily-challenged British government, in return for which he and his shareholders received the Charter, extending (among other privileges) the right to issue bank notes.  Within a century, the Bank of England had become manager of the National Debt, “the banks of banks” in England– and the model on which most large central banks have been based.

B of E’s Threadneedle Street headquarters

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