ShcShc11

A newbie question... I'm still new to the sport and one of the thing that still scares me is falling out of the harnesses. Its probably an irational fear, but I always hesitate in doing new things because of this fear of falling out of the harnesses (e.g: barrel rolls, flips, etc...). In what situations can you fall out of the harnesses? How often does it happen? Would a belly-strap help like Bill Booth advised? The chest strap just seems so... primitive (irrational fear... ) Thanks for the info! Cheers!

fuckinng scaryyy.

In far fewer than 10 seconds, this could happen: http://www.youtube.com/watch?v=5rn1OI25bH4 Holy.fucking.shit

Woooooooooooohoooooooo! I hope there's discounts for early birds bitches!

Literally falling asleep in a restaurant that is completely in the dark (restaurant is called O'Noir)

Thanks !

I have some few small-format/sized pics. I don't recall where I got them so I can't credit the photographer or owner but I'll take a chance on getting bitch-slapped and post them.... Hope it helps some. Is there a website/videos/descriptions of what to do exactly in each type of these malfunctions (especially the ones having both the main/reserve out). I "kind of" understand what to do, but I don't know if I truly understand what do until I see it real life. Cheers & thanks.

Looks to me like the South Korean team is in there too. Look at the flag patches on both of them. Funny how they all look alike. Koreans really do look like Koreans. ;)

Shirley, you jest! The fixation on "carbon" as the culprit of Climate Change is well established in the literature. Do your homework and get back to me. Feeeelings, nothing more than feeeeelings... You claim to be an expert in the field yet the only thing you can name in that post is "Inconvenient Truth"?? "Inconvenient Truth" was made for the public mass. Its the same league as giving a first year student Macroeconomics 101. It's supposed to cover the generalities rather than the specifics. There are far more sophisitcated and well-researched literatures on this issue and you seem very unwilling to back your accusations with real evidence, real numbers and real research. Cheers!

You have taken a decisive side in regards to the discussion and it would be up to you to back your own findings with evidence. When you claim observe that someone is "illiterate" or that people who believes in climate change is are a "cult", then you are bringing a strong judgment and accusation stating the obvious. Wouldn't someone who teaches Physics want his students to bring compelling and conclusive arguments rather than relying on their prejudice? Please clarify - who are the students, and what is their "prejudice?" Did you not just say that youlectured at a University in Physics "for a few years"? Seems like a lot of blah blah as you refuse to bring any evidence to back any of your prejudices. Please lay off the hand-waving and get specific. To precisely which "prejudices" do you refer, and what evidence do you seek? "What I pointed out was that the climate change cult has latched onto one factor in a particularly complex system, with the tacit assumption that this is the only parameter of interest. " A more substantial evidence backing your accusations would be a start. Else your post feels like another version of: "He's an idiot" "What makes him an idiot exactly?" "I don't know.. Because he's an idiot!" Cheers!

You have taken a decisive side in regards to the discussion and it would be up to you to back your own findings with evidence. When you claim observe that someone is "illiterate" or that people who believes in climate change is are a "cult", then you are bringing a strong judgment and accusation stating the obvious. Wouldn't someone who teaches Physics want his students to bring compelling and conclusive arguments rather than relying on their prejudice? Please clarify - who are the students, and what is their "prejudice?" Did you not just say that youlectured at a University in Physics "for a few years"? Seems like a lot of blah blah as you refuse to bring any evidence to back any of your prejudices.

You do know that doing nothing or worse, going into "balancing the budget" (i.e: austerity) leads to even bigger waste. 900 B$ /year more precisely. Tax cuts doesn't have the multiplier effect everybody wants it to have. a lot of people seem to cling a little bit too much to fairy tales imo. "if we cut tax, everything would be OK!" Cheers,

Its actually too bad there's not more Europeans here. I think a very worthy economics topic would be: "Would it be fair for the Germans for their taxpayers to subsidize Italian and Greece's uncompetitive export industry?" Germany is herself "unfairly" taking advantage of the low Euro exchange to boost her own export industry. And eitherway, without a sort of transfer union (in the same way Federal money goes to weaker States), a working European Union is simply impossible. Cheers to all.

You have taken a decisive side in regards to the discussion and it would be up to you to back your own findings with evidence. When you claim that someone is "illiterate" or that people who believes in climate change is a "cult", then you are bringing a strong judgment and accusation. Wouldn't someone who teach Physics want his students to bring compelling and conclusive arguments than relying on their prejudice? Anyway, cheers and happy Sunday! :)

In any event It is more data to go over This whole discussion is weird. You guys are claiming that they are distorting or misreading the datas, but David Rose is notoriously famous on doing just that! or when you call someone: Aren't you guys also "technically illiterate"? (in the sense that you guys don't seem like scientists). Otherwise, wouldn't it be better if you guys had a much more argumentative structure? Something in the format of: CASE 1 This is his argument Rebuttal: Why the model is completely wrong CASE 2 This is his argument Rebuttal: Why he is wrong again etc... This whole debate by casual people always seems without substance. I'm more of an economist/business analyst so I won't comment too much on the whole climate issue. However, its disturbing for people to keep using: "Oh the climate-warner's arguments are SOOO simplistic" yet the criticisms themselves are even more simplistic. These kind of discussions always feel like: "I argue so I can win the argument" rather than "I argue to learn about both sides". I guess I'm still naive enough to think that people want to argue in good faith. JMO Cheers!

I did a bit for a friend (though in Toronto). Its OK. Waiting time is long as hell. Its worth it if the people there are worth talking to imo. Cheers!

Also if anyone is interested with Larry Summer's latest interview: http://blogs.reuters.com/felix-salmon/2012/01/27/summers-inside-job-had-essentially-all-its-facts-wrong/ (Interview posted on January 27th 2012). This interview probably puts to rest that Obama "had everything it wanted" when in reality it was heavily constrained. Cheers!

Who is we? The government? Maybe you could help us out a bit by giving us some audience definition. Are you trained as an economist? Again, by "we" do you mean the government? There is much more to the US economy than government spending and household spending. As mentioned previously, corporate utility functions and household utility functions are very different animals. Corporations are an essential part of capitalism, and the American way of life. What is irresponsible is the government putting us into this mess to begin with. Depends upon your philosophy. I think lawrocket's point is valid. I can tell you understand capitalism and I can definitely agree this argument to explain why Capitalism is the best overall system that we know of today. This is also probably a very reasonable reason for supply-side economics during normal times and/or ordinary recessionary times. However, the private sector was and still is inundated with huge debt burden and is unlikely to stimulate the economy. It’s not so much that we don’t account for hard work/motivation, but rather the statistics are blatantly clear that they are incapable of growing demand. -It’s one thing when an individual has no debt and wants to take risk in a business venture. -It’s another situation when that same individual has a -30k debt which he has to pay Bank of America ASAP. He might want to take a risk for a new business, but would be unable to do so due to his debt burdens. He is incapacitated by debt and it has nothing to do with “giving him more motivation”. The U.S private sector just has too much debt (though it has gotten better lately in comparison to 2008). This is why tax breaks are not as efficient in a liquidity trap. The private sector will likely use the money to pay its debt because it has no other choice. ..which comes to your next quote: This is a generic way of explaining it, but the main problem right now is a lack of demand . Businesses already have an excess of capacity and can very easily meet the current economic demand. Why invest in new machines, new jobs and new investments when you meet your demand with what you have? Of course the businesses will pile up the cash! You know how CNN keeps asking the same question over & over: “Why are businesses doing so well/record profits while unemployment is so high?” Simple answer: They are meeting the demands with what they have. If money from tax breaks is used to pay off individual (private sector) debt, then the money won’t circulate into the economy thus having “less multiplier”. You’re wasting money because the money won’t be used. If money from tax breaks goes to businesses, then the money will just pile up because: A) They want to feel safer and have a large amount of cash in case of another crunch B) No Demand therefore no reason to spend it in machines/businesses If private sector debt is low, then (yes absolutely) tax break will work very efficiently! Spending on the other hand stimulates demand directly: -Direct demands to other companies & businesses -More Demands = Businesses spend their excess money in machines/people/etc... -More people working = People pay off their debt rather than sitting on their asses doing nothing -Less debt = More chance for people to spend and stimulate more demands. -oh and better infrastructure, better efficiency Money that isin’t used or circulated in the economy is just as wasteful because the U.S could be producing much more. If Obama failed somewhere very miserably, it’s his ability to communicate this. He was a great campaigner in 2008, but he was terrible at promoting or defending his actions afterwards. We as a society. Someone who is unemployed because there is no job available is wasted output potential. He could be using his time & skills to produce something for the economy, but he instead sits and contribute nothing to society (i.e: opportunity cost). By not remedying the unemployment decisively and fast, the U.S is inherently wasting billions of potential output. An economist calculated that the waste amounted to 900B$/year. This is why people saying “balance the budget” is not right (at least not at this moment). Cut more and tax more -> More unemployment and less demand -> less demand = less investment and less job creations -> less job experience -> less money in pension, less ability for private sector to diminish debt, less infrastructure, etc... This isin’t theory. This is happening right now in the U.K, in Ireland, In Estonia, in Greece, etc... In fact, U.K’s current recession is LONGER & DEEPER than their 1930 Great Depression. http://4.bp.blogspot.com/-nJj1otZvRwE/TyBLsy3zJiI/AAAAAAAAAAo/Dg7mVdMpdH0/s1600/gdp+chart+jan+2012.jpg I could accept people saying “austerity now for a balanced budget” as long as they understood the repercussions of it. It means a far worse unemployment rate (and far larger potential output wasted), and it would mean 20 years of sub-standard GDP. So this isin’t “a little bit of pain” that seems to be the thought of many people (including Tim Thomas’ latest comments). “20 years? Now you’re just exaggerating!” I attached Japanese GDP per working-age at the bottom of the post. It took SIXTEEN years for the Japanese economy to return to its normal state (with the worse time being at the late 1990s). It returned to more or less normal at around 2007. With the 2008 crisis and 2011 tsunami catastrophe, our friends in Japan still haven’t reached their normal economic state after twenty-two years. So yes, it was irresponsible for the U.S Government to have accumulated this much debt in the first place. However, it would be even more irresponsible (and extremely wasteful) for the Government to put us in a permanently underperforming economy for 15-20 years. Heck, I don’t think the Japanese lost decade would look “responsible” to even the most ardent pro-austerity group if they understood what happened. So the summary of summaries: Bring the damn economy back to health THEN go into austerity to fix the debt. Not the other way around! Cheers all and happy weekend! : )

sure which bills? http://en.wikipedia.org/wiki/American_Recovery_and_Reinvestment_Act_of_2009 These are readily available to even wikipedia. "At that point, spending outlays under the stimulus totaled $257 billion and tax cuts totaled $223 billion" cheers! :)

... about the "need to balance the budget" and that it would take a bit of pain. This came out 2 days ago or so: http://notthetreasuryview.blogspot.com/2012/01/recessions-and-recoveries-historical.html Our dear friends at the U.K have been playing the responsibility/morality card since Cameron came to Government (balancing the budget). Result: The ongoing recession in the U.K is now A) LONGER and B) DEEPER than the Great Depression of the 1930s. Truth is, this isin't simple by a long shot. Balancing the budget might sound noble and responsible, but you risk well into double-digit unemployment with 1.8 trillion $ in potential lost annual output. Cheers,

lol I love all this "we should have cut tax!" to save the economy talk. - mnealtx, you DO know that Obama had more tax cuts than George Bush? http://www.americanprogress.org/issues/2011/09/img/obama_taxes.jpg "Put it all together, and in one fell swoop, President Obama cut taxes by $654 billion in 2011 and 2012 alone. In other words, with this bill President Obama cut taxes by more, in raw dollar amounts, in just half of his term than George W. Bush did over his full first term. With the huge Recovery Act tax cuts and the enormous December 2010 tax cuts combined, President Obama has already signed into law tax cuts amounting to more than $900 billion from 2009 through 2012." oh and you do know Obama's latest job legislation consisted pretty much of mostly tax cuts? "If Congress passes this next set of Obama tax cuts, his total will rise to well more than $1.1 trillion, or nearly 2 percent of GDP—close to double the size of the tax cuts in President Bush’s first term." look up the numbers cheers!

http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=161 I’m neither pro or against a higher capital gain tax (at least for now) though I do want to mention that Capital Gain Taxes at 15% are at an all-time low in U.S history. Even during the Reagan Administration had a significantly higher CGT. I’ve seen cases for both, but I continually see some odd blind faith that lower is better without much justfications. Though here are some compelling reasons to be against: http://botc.tcf.org/2011/10/10-reasons-to-eliminate-the-tax-break-for-capital-gains-.html And I wrote this before, but this is a fun fact: “President Ronald Reagan, the idol of conservative Republicans, was the only president to sign legislation raising capital gains taxes to the same level as income taxes. Most tax experts consider the historic 1986 Tax Reform Act, which was passed with bipartisan congressional support, to be one of the greatest legislative accomplishments of the past fifty years. It rid the tax code of dozens of special loopholes, including the tax exemption for capital gains, while reducing rates on earned income. Bruce Bartlett, who was a senior economic adviser to Reagan, recently wrote: "In the end, the key compromise that made the 1986 law work was Reagan's willingness to raise the capital gains tax to 28” [SEE HISTORICAL CAPITAL GAIN GRAPHS] But I remember statistics in regards to CGT taxes where if you raised it by 10 percent, it would only bring a few hundred million $. Hardly anything to solve anything. The military and mid-term future entitlements are where the money is at.

If we are more precise, it is the payments in relation to the Treaty of Versailles. It called for the Weimar Republic to pay reparation money which Germany did not have. Now a reparation money is very different from let’s say spending on infrastructure. Reparation money is giving a country’s money directly to another country while spending on infrastructure would essentially give money to the same country. If anyone forgot: Even the smallest countries sell most of their production/work to themselves. The United States sells 85-90% to themselves. Now let’s remember what happened afterwards... The French invaded and occupied Germany’s Rhineland territory in 1923 and demanded the Weimar Republic to pay in full... which led to the hyperinflation. I have the numbers somewhere in Adam Tooze’s book if anybody needs. Rhineland was Germany’s industrial center. So unless if we are threatened to have New York invaded by Foreign Powers and have a harsh debt repayment that lasts to 2080, then events of the Weimar hyper-inflation is highly irrelevant. [NOTE: (Germany’s reparation was predicted to last to 1980-1990) back when Versailles was signed in 1919...thus the reference 2080. ] In all honestly, Nazi Germany’s 1930 would probably be far more relevant than Weimar Republic Germany. The causes and symptoms are much more alike. But of course, Merkel and Sakorzy seem to ignore that period because it’s part of a dark European time which they want to forget. Oh... and they probably don’t want anybody to use Godwin’s law against them lol. Reading these two quotes and I can probably pinpoint where you’re misunderstanding is. You make it as if this is an all or nothing. Either they are right 100% or wrong 100%. Hayak’s micro-economic models are pertinent, but only pertinent to certain situations (some of them are very pertinent in fact). But it is still a model that is still flawed and fairly limited to real-life comparisons. Every economist recognizes that their models are inherently flawed and it will never fully account of every variables of a real-life situation. This goes with Keynes models too. They are very specific to a certain situation. And this would explain why you seem adamant to bring up Reagan’s time to compare with Obama’s time when the situations are completely different and irrelevant. Yet, why isin’t there any serious comparisons with 1990 Japanese lost decade? What about the current U.K austerity program comparison? I remember the good ol’ times when there used to be a flood of articles in which economists have failed to predict the 2008 crisis (which is entirely true). Many models failed to even recognize that it was possible at all! So the models might be relevant to stagflation, but not a liquidity trap. Different causes therefore different remedies are needed. Oh and in response to the “Reagan economists weren’t Keynesians” therefore that’s proof Keynes is wrong: “President Ronald Reagan, the idol of conservative Republicans, was the only president to sign legislation raising capital gains taxes to the same level as income taxes. Most tax experts consider the historic 1986 Tax Reform Act, which was passed with bipartisan congressional support, to be one of the greatest legislative accomplishments of the past fifty years. It rid the tax code of dozens of special loopholes, including the tax exemption for capital gains, while reducing rates on earned income. Bruce Bartlett, who was a senior economic adviser to Reagan, recently wrote: "In the end, the key compromise that made the 1986 law work was Reagan's willingness to raise the capital gains tax to 28” I’m neither pro or against capital gain taxes, but if you follow Reagan’s economists to the letter, why not also raise CGT like they did? Though I very much enjoy reading on your take, there are some pre-assumptions that are being made and it keeps wondering how and where you bring your conclusions. “The whole Europe overspent for far too long” is understandable because so many in the media got it wrong, but some of the statement that “Obama made things worse, not better” seem as if you made this out of thin air. I would recommend “The New Yorker’s” recent articles on Larry Summer’s memos to Obama 2009-2011. Obama has clearly taken advices from Geithner and Summers (almost to the letter) where the stimulus was needed to help the economy. http://www.newyorker.com/reporting/2012/01/30/120130fa_fact_lizza Both Geithner and Summers’ team said that if “more stimulus is required, then they can easily go back to Congress and get more of it”. Clearly, they underestimated the GOP politics. And clearly, they knew there was a very good probability that a bigger stimulus would be needed (see the New Yorker link I posted above in the Europe section). Ben Bernanke, is one of the biggest critics over Japanese handling of its own economic crisis during the 1990s’ lost decade. He overtly criticizes them many times that Japanese should have taken more action (i.e: stimulus) in order to bring its economy back to running order. http://www.iie.com/publications/chapters_preview/319/7iie289X.pdf This is well known. To say that Geithner and Bernanke had its hands handicapped by Obama is just plain false. If anything, as the Larry Summers memos indicates, it is the GOP who clearly impeded what they wanted to do. “he's gotten pretty much everything he's asked for in his time in office” I would really love it if I can find out HOW you came to these conclusions. They were nowhere near anything he wanted. In fact, the whole GOP vs Democrats debacle handicapped any real stimulus and it was nowhere near anything he wanted (nor in substance or in quantity). Remember that even the 2009 stimulus had a major portion of tax-cuts (that gives a much lesser multiplier) and most of it was sent in order to aid states with a major budget deficit. Thinking that a measly 200-300B$ to help cover a 3T$ GDP gap output is simply delusional. Now let’s go over Ben Bernanke. Ben Bernanke has many times over expressed its frustration over the political paralysis because people were sceptical of QE. It’s difficult to understand why people seem so susceptible to the line that “Obama made things worse” when the numbers clearly indicate that things have improved. Would it have been nice to have 4-5% full employment? Of course. But when people are timid about stimulus package (a measly B$ to cover a 6% GDP hole), then the country will have to live with an economy that will not perform to its expectation. Bernanke knew it was inadequate. Summers knew it wasn’t going to restore full employment. Geithner knew it wasn’t going to restore full employment. “To accomplish a more significant reduction in the output gap would require stimulus of well over $1 trillion based on purely mechanical assumptions — which would likely not accomplish the goal because of the impact it would have on market.” “it is easier to add down the road to insufficient fiscal stimulus than to subtract from excessive fiscal stimulus.” They got everything it wanted? Hardly.

If we are more precise, it is the payments in relation to the Treaty of Versailles. It called for the Weimar Republic to pay reparation money which Germany did not have. Now a reparation money is very different from let’s say spending on infrastructure. Reparation money is giving a country’s money directly to another country while spending on infrastructure would essentially give money to the same country. If anyone forgot: Even the smallest countries sell most of their production/work to themselves. The United States sells 85-90% to themselves. Now let’s remember what happened afterwards... The French invaded and occupied Germany’s Rhineland territory in 1923 and demanded the Weimar Republic to pay in full... which led to the hyperinflation. I have the numbers somewhere in Adam Tooze’s book if anybody needs. Rhineland was Germany’s industrial center. So unless if we are threatened to have New York invaded by Foreign Powers and have a harsh debt repayment that lasts to 2080, then events of the Weimar hyper-inflation is highly irrelevant. [NOTE: (Germany’s reparation was predicted to last to 1980-1990) back when Versailles was signed in 1919...thus the reference 2080. ] In all honestly, Nazi Germany’s 1930 would probably be far more relevant than Weimar Republic Germany. The causes and symptoms are much more alike. But of course, Merkel and Sakorzy seem to ignore that period because it’s part of a dark European time which they want to forget. Oh... and they probably don’t want anybody to use Godwin’s law against them lol. Reading these two quotes and I can probably pinpoint where you’re misunderstanding is. You make it as if this is an all or nothing. Either they are right 100% or wrong 100%. Hayak’s micro-economic models are pertinent, but only pertinent to certain situations (some of them are very pertinent in fact). But it is still a model that is still flawed and fairly limited to real-life comparisons. Every economist recognizes that their models are inherently flawed and it will never fully account of every variables of a real-life situation. This goes with Keynes models too. They are very specific to a certain situation. And this would explain why you seem adamant to bring up Reagan’s time to compare with Obama’s time when the situations are completely different and irrelevant. Yet, why isin’t there any serious comparisons with 1990 Japanese lost decade? What about the current U.K austerity program comparison? I remember the good ol’ times when there used to be a flood of articles in which economists have failed to predict the 2008 crisis (which is entirely true). Many models failed to even recognize that it was possible at all! So the models might be relevant to stagflation, but not a liquidity trap. Different causes therefore different remedies are needed. Oh and in response to the “Reagan economists weren’t Keynesians” therefore that’s proof Keynes is wrong: “President Ronald Reagan, the idol of conservative Republicans, was the only president to sign legislation raising capital gains taxes to the same level as income taxes. Most tax experts consider the historic 1986 Tax Reform Act, which was passed with bipartisan congressional support, to be one of the greatest legislative accomplishments of the past fifty years. It rid the tax code of dozens of special loopholes, including the tax exemption for capital gains, while reducing rates on earned income. Bruce Bartlett, who was a senior economic adviser to Reagan, recently wrote: "In the end, the key compromise that made the 1986 law work was Reagan's willingness to raise the capital gains tax to 28” I’m neither pro or against capital gain taxes, but if you follow Reagan’s economists to the letter, why not also raise CGT like they did?

A very humorous order was written by the Bank of England not too long ago. The Bank of England. http://www.bankofengland.co.uk/publications/fsr/2011/fsrsum1112.pdf It represents a bit what is going on over here in America. Emphasis on this: “The Committee reiterates its advice to the FSA to encourage banks to improve the resilience of their balance sheets without exacerbating market fragility or reducing lending to the real economy.” Did you understand what they are ordering? The Bank of England says “Improve your balance sheet, but without reducing your lending”. It’s hard to understand how the Bank of England can give out such distinctly contradictory orders. You either improve your B/S by diminishing lending or help the economy by permitting banks to lend more. And this is the constant dilemma in which we are in. A bunch of contradictory orders from the bottom asking the Government to lower unemployment while reducing the deficit short-term. When you hear the same arguments over & over, you end up realizing that people don't truly understand what debt is for a country. A good summary on the debt: http://www.creditwritedowns.com/2012/01/friedman-functional-finance-government-budget-constraint.html ** Milton Friedman, Functional Finance and the Government Budget Constraint Last week we examined Milton Friedman’s version of Functional Finance, which we found to be remarkably similar to Abba Lerner’s. If the economy is operating below full employment, government ought to run a budget deficit; if beyond full employment it should run a surplus. He also advocated that all government spending should be financed by “printing money” and taxes would destroy money. That, as we know, is an accurate description of sovereign government spending—except that it is keystrokes, not money printing. Deficits mean net money creation, through net keystrokes. The only problem with Friedman’s analysis is that he did not account for the external sector: he wanted a balanced budget at full employment, but if a country tends to run a trade deficit at full employment, then it must have a government budget deficit to allow the private sector to run a balanced budget—which is the minimum we should normally expect. Somehow all this understanding was lost over the course of the postwar period, replaced by “sound finance” which is anything but sound. It was based on an inappropriate extension of the household “budget constraint” to government. This is obviously inappropriate—households are users of the currency, while government is the issuer. It doesn’t face anything like a household budget constraint. How could economics have become so confused? Let us see what Paul Samuelson said, and then turn to proper policy to promote long term growth. Functional Finance versus Superstition. The functional finance approach of Friedman and Lerner was mostly forgotten by the 1970s. Indeed, it was replaced in academia with something known as the “government budget constraint”. The idea is simple: a government’s spending is constrained by its tax revenue, its ability to borrow (sell bonds) and “printing money”. In this view, government really spends its tax revenue and borrows money from markets in order to finance a shortfall of tax revenue. If all else fails, it can run the printing presses, but most economists abhor this activity because it is believed to be highly inflationary. Indeed, economists continually refer to hyperinflationary episodes—such as Germany’s Weimar Republic, Hungary’s experience, or in modern times, Zimbabwe—as a cautionary tale against “financing” spending through printing money. Note that there are two related points that are being made. First, government is “constrained” much like a household. A household has income (wages, interest, profits) and when that is insufficient it can run a deficit through borrowing from a bank or other financial institution. While it is recognized that government can also print money, which is something households cannot do, these is seen as extraordinary behaviour—sort of a last resort. There is no recognition that all spending by government is actually done by crediting bank accounts—keystrokes that are more akin to “printing money” than to “spending out of income”. That is to say, the second point is that the conventional view does not recognize that as the issuer of the sovereign currency, government cannot really rely on taxpayers or financial markets to supply it with the “money” it needs. From inception, taxpayers and financial markets can only supply to the government the “money” they received from government. That is to say, taxpayers pay taxes using government’s own IOUs; banks use government’s own IOUs to buy bonds from government. This confusion by economists then leads to the views propagated by the media and by policy-makers: a government that continually spends more than its tax revenue is “living beyond its means”, flirting with “insolvency” because eventually markets will “shut off credit”. To be sure, most macroeconomists do not make these mistakes—they recognize that a sovereign government cannot really become insolvent in its own currency. They do recognize that government can make all promises as they come due, because it can “run the printing presses”. Yet, they shudder at the thought—since that would expose the nation to the dangers of inflation or hyperinflation. The discussion by policy-makers—at least in the US—is far more confused. For example, President Obama frequently asserted throughout 2010 that the US government was “running out of money”—like a household that had spent all the money it had saved in a cookie jar. So how did we get to this point? How could we have forgotten what Lerner and Friedman clearly understood? In a very interesting interview in a documentary produced by Mark Blaug on J.M. Keynes, Samuelson explained: "I think there is an element of truth in the view that the superstition that the budget must be balanced at all times [is necessary]. Once it is debunked [that] takes away one of the bulwarks that every society must have against expenditure out of control. There must be discipline in the allocation of resources or you will have anarchistic chaos and inefficiency. And one of the functions of old fashioned religion was to scare people by sometimes what might be regarded as myths into behaving in a way that the long-run civilized life requires. We have taken away a belief in the intrinsic necessity of balancing the budget if not in every year, [then] in every short period of time. If Prime Minister Gladstone came back to life he would say "uh, oh what you have done" and James Buchanan argues in those terms. I have to say that I see merit in that view." The belief that the government must balance its budget over some timeframe is likened to a “religion”, a “superstition” that is necessary to scare the population into behaving in a desired manner. Otherwise, voters might demand that their elected officials spend too much, causing inflation. Thus, the view that balanced budgets are desirable has nothing to do with “affordability” and the analogies between a household budget and a government budget are not correct. Rather, it is necessary to constrain government spending with the “myth” precisely because it does not really face a budget constraint. The US (and many other nations) really did face inflationary pressures from the late 1960s until the 1990s (at least periodically). Those who believed the inflation resulted from too much government spending helped to fuel the creation of the balanced budget “religion” to fight the inflation. The problem is that what started as something recognized by economists and policymakers to be a “myth” came to be believed as the truth. An incorrect understanding was developed. Originally the myth was “functional” in the sense that it constrained a government that otherwise would spend too much, creating inflation. But like many useful myths, this one eventually became a harmful myth—an example of what John Kenneth Galbraith called an “innocent fraud”, an unwarranted belief that prevents proper behaviour. Sovereign governments began to believe that the really could not “afford” to undertake desired policy, on the belief they might become insolvent. Ironically, in the midst of the worst economic crisis since the Great Depression of the 1930s, President Obama repeatedly claimed that the US government had “run out of money”—that it could not afford to undertake policy that most believed to be desired. As unemployment rose to nearly 10%, the government was paralysed—it could not adopt the policy that both Lerner and Friedman advocated: spend enough to return the economy toward full employment. Ironically, throughout the crisis, the Fed (as well as some other central banks, including the Bank of England and the Bank of Japan) essentially followed Lerner’s second principle: it provided more than enough bank reserves to keep the overnight interest rate on a target that was nearly zero. It did this by purchasing financial assets from banks (a policy known as “quantitative easing”), in record volumes ($1.75 trillion in the first phase, with a planned additional $600 billion in the second phase). Chairman Bernanke was actually grilled in Congress about where he obtained all the “money” to buy those bonds. He (correctly) stated that the Fed simply created it by crediting bank reserves—through keystrokes. The Fed can never run out “money”; it can afford to buy any financial assets banks are willing to sell. And yet we have the President (as well as many members of the economics profession as well as most politicians in Congress) believing government is “running out of money”! There are plenty of “keystrokes” to buy financial assets, but no “keystrokes” to pay wages. That indicates just how dysfunctional the myth has become. A Budget Stance to Promote Long Term Growth. The lesson that can be learned from that three decade experience of the US is that in the context of a private sector desire to run a budget surplus (to accumulate savings) plus a propensity to run current account deficits, the government budget must be biased to run a deficit even at full employment. This is a situation that had not been foreseen by Friedman (not surprising since the US was running a current account surplus in the first two decades after WWII). The other lesson to be learned is that a budget surplus (like the one President Clinton presided over) is not something to be celebrated as an accomplishment—it falls out of an identity, and is indicative of a private sector deficit (ignoring the current account). Unlike the sovereign issuer of the currency, the private sector is a user of the currency. It really does face a budget constraint. And as we now know, that decade of deficit spending by the US private sector left it with a mountain of debt that it could not service. That is part of the explanation for the global financial crisis that began in the US. To be sure, the causal relations are complex. We should not conclude that the cause of the private deficit was the Clinton budget surplus; and we should not conclude that the global crisis should be attributed solely to US household deficit spending. But we can conclude that accounting identities do hold: with a current account balance of zero, a private domestic deficit equals a government surplus. And if the current account balance is in deficit, then the private sector can run a surplus (“save”) only if the budget deficit of the government is larger than the current account deficit. Finally, the conclusion we should reach from our understanding of currency sovereignty is that a government deficit is more sustainable than a private sector deficit—the government is the issuer, the household or the firm is the user of the currency. Unless a nation can run a continuous current account surplus, the government’s budget will need to be biased to run deficits on a sustained basis to promote long term growth. However, we know from our previous discussion that fiscal policy space depends on the exchange rate regime—the topic of the next blog. Further, we want to be clear: the appropriate budget stance depends on the balance of the other two sectors. A nation that tends to run a current account surplus can run tighter fiscal policy; it might even be able to run a sustained government budget surplus (this is the case in Singapore—which pegs its exchange rate, and runs a budget surplus because it runs a current account surplus while it accumulates foreign exchange). A government budget surplus is also appropriate when the domestic private sector runs a deficit (given a current account balance of zero, this must be true by identity). However, for the reasons discussed above, that is not ultimately sustainable because the private sector is a user, not an issuer, of the currency. Finally, we must note that it is not possible for all nations to run current account surpluses—Asian net exporters, for example, rely heavily on sales to the US, which runs a current account deficit to provide the Dollar assets the exporters want to accumulate. We conclude that at least some governments will have to run persistent deficits to provide the net financial assets desired by the world’s savers. It makes sense for the government of the nation that provides the international reserve currency to fill that role. For the time being, that is the US government. ** Anyway, it was a lengthy post, but what's happening in Europe is very relevant as they have outrightly rejected any sort of spending.