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Trade Trends with Bollonger Bands and Twiggs Money Flow

The Debt Limit

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colin_twiggs
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Username: colin_twiggs

Post Number: 1211
Registered: 06-2009

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Message received from Peter through our support system:

Just an observation/comment. Long term; if you are going to run an overdraft; and have an inflation target >zero and/or have economic growth; the concept of a non-indexed debt 'limit' is stupid; the first ever 'limit' would have ceased to be ameaningful or sensible overdraft soon after any level of inflation or economic growth was deemed to be appropriate for the long term. The fact they should not have arrived at this particular limit by now is a separate issue, ie, their non-independent Fed Reserve, corrupt institutions, the corruption of vote buying by lobby groups instead of everyone voting, corruption of allowing mortgages to be pushed onto desperate poor people without jobs, corruption of the concept of jingle mail instead of repaying mortgages, corruption of ratings agencies being able to stay in business and be flippant about, and non-liable for declaring those mortgages to be safer than the biggest, safest companies in the world, etc, has caused the current state of their economy.


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colin_twiggs
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Post Number: 1212
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Saturday, July 30, 2011 - 07:32 am:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Peter,

Thank you for writing. The concept of an indexed limit would not work for practical reasons:
  • an indexed limit would be a moving target -- no one would know what the limit would be until the index is calculated;
  • if there is deflation, does the limit shrink?
  • the index could be rigged or subject to cyclical fluctuations;
  • a fixed debt limit helps control inflation;
  • linking debt and inflation could result in a feedback loop so that a linked limit is never reached.


Apart from that I believe that:
  • we should not target inflation > 0;
  • government should only issue debt to fund specific capital projects (e.g. infrastructure) that will generate additional revenue (direct or traceable) sufficient to pay off the debt within a reasonable time period -- anything else amounts to fiscal profligacy.

Regards, Colin


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colin_twiggs
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Post Number: 1213
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Saturday, July 30, 2011 - 07:33 am:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Response from Peter:

Response to your 7 points: You're welcome to post it. 1. Liken it to a business. Economic growth is growth of the size of the business. If business/economy doubles in size, so does overdraft. $ are the units of measurement of the size of the economy. Inflation reduces the size of each $ (deflation increases it), so you need to index the number of $ according to the amount of inflation/deflation. Everyone would know and predict the size of the limit as accurately as they predict economic growth and inflation now, and would not be able to manipulate it for political gain like the current circus. Might be a stabilising, inflation moderating arrangement?? 2. Yes, the limit shrinks with deflation or negative growth; it is a percentage of the size of the economy/business. 3. Growth and inflation are subject to corrupt measurement practices. Measurer would need to be reputable like Australian Reserve Bank, not farcicle/criminal? like American ratings agencies. 4. Particularly American govts are so short term thinking, wouldn't care until the govt that reaches the limit, so it wouldn't limit inflation till then?? 5. Feedback loop could happen if you have a stupid or non-independent reserve bank, or corrupt measurers. Glen Stevens, et al would raise interest rates to keep inflation in check, so debt limit would be kept in check. 6. I think(?) the reason for low, but some, inflation is to make people feel like they are getting ahead slightly; nominal wage and asset level appear to be growing, so people are more motivated, positive, feel successful and want to be productive, compared to if their wage only changed with productivity (positive reinforcement psychology). I think it is like growth. For earths sake zero real growth should be the target (growth can't be infinite), but people would feel like they would be getting nowhere?? 7. Costello govt fitted with your last point; and created one of the only independently thinking and acting reserve banks in the world. Rudd promised to follow suit, and may have with help from mining boom, but for the overflow from the myriad of corruption/what I call crime that happened with America creating hollow paper, rating it AAA !!! and selling it to the world as AAA. We're just lucky it blew up when they had only sold half of it to the rest of the world, otherwise they'd have all the money and we'd have all the paper; exactly what a country did manage to achieve selling worthless stuff (was it the tulip one?) prior to a much earlier depression. Cheers, Peter.







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colin_twiggs
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Saturday, July 30, 2011 - 07:34 am:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Peter,

I still think it is impractical to have a moving target. Try convincing your bank to give you an index-linked overdraft.

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