Outgrowing Government Debt Using Pension Fund Easing.

[morganist]

Multiple topics have claimed major influence of economic policy and to back it up you post a miiiiiiile long list in which you one of mannnnnnnny authors.

Something doesn't add up. Not even to minor influence.

When it comes to the point that it is listed as a resource and bibliography of the Euro contained in the European University Institute's archive and is referenced as being a resource of the Euro it is the level of status you previously requested. The EUI had to be given a level of status to be able to be an official depository of 'EU publications and documents'. That is an acknowledgement that the book has to be considered to be an 'EU publication or document' for the book to be listed there and the status of EDC was needed to be able to contain the book in its list. See below.

https://www.eui.eu/Research/Library/AboutTheLibrary

It has been granted a status to be able to archive and allow access to 'EU publications and documents'. My book is listed as a 'EU publication or document' and is listed and referenced by the Library and Institution that has been granted the status of being allowed to archive the EU's publications and documents. This is where it should be and this is where the acknowledgement is.

 

[piezoe]

The article below was originally published at Morganist Economics and is copyright © 2020 Peter James Rhys Morgan.

http://morganisteconomics.blogspot.com/2020/10/using-pension-fund-easing-to-close.html

Using Pension Fund Easing To Close The Government Spending Deficit And To Reduce The Overall Government Debt.

By Peter Morgan. 19:28 09/10/20.


When government spending exceeds government revenue over a specific period of time the surplus government expenditure is referred to as the government deficit. The government deficit is only the amount of overspending a government generates over a set period of time, which is different to the government debt. The government debt is the total amount of debt the government generated throughout the entire period of time that it began to borrow money.

To be capable of paying off the outstanding government debt the government deficit has to be closed by increasing government revenue until it surpasses governmental expenditure, when government income exceeds government spending it is referred to as the government surplus. Once the government is in surplus the excess income can be used to pay off the outstanding government debt, this is the traditional method of reducing the total government debt to GDP.

There is another method of reducing the total government debt to GDP that can be achieved without having to pay off any of the outstanding government debts. Increasing economic growth will reduce the amount of total government debt as a percentage of GDP, reducing the relative amount of money the government has to pay back from future revenue. The increase in GDP also boosts future governmental revenue streams making it easier to pay the debt off.

By generating further economic growth it is possible to reduce the relative amount of total government debt to the overall level of economic output, which is effectively outgrowing the government debt. Even if the government deficit is not closed if the rate of economic growth exceeds the rate of government borrowing the amount of total government debt will decrease in relation to GDP, no debt has to be repaid but a higher rate of economic growth is required.

The government can in effect continue to borrow money, maintaining a deficit, but reduce the total amount of government debt in relation to GDP, as long as the rate of economic growth is greater than the deficit. As long as economic growth is higher than the deficit during the same period of time overall government debt will fall as a percentage of GDP. Attaining economic growth over prolonged periods of time can dramatically reduce the government debt to GDP.

Pension Fund Easing has the ability to stimulate additional economic growth by increasing the velocity of transactions during a specific period of time, through the superior placement of the money invested in pension funds. By increasing economic growth for sustained periods of time even by small percentages it is possible to reduce government debt to GDP massively. Even if the government has a deficit if it is exceeded by growth it will reduce debt to GDP.

Although it is possible to reduce the percentage of government debt to GDP while there is still a government deficit, as long as economic growth is greater than the shortfall, it is best to get rid of the deficit first to slash the amount of government debt through sustained economic growth. It might be possible to generate a further 4% of economic growth per year from the use of 'Pension Fund Easing', that will help to close the deficit and pay off government debt.

I don't think this is the first time I have mentioned to you how absurd this idea of yours is that sovereign debt should be repaid. This is such an easy thing to understand I don't know why it can't sink in with you. I'll explain it very simply. But before I launch into a more detailed explanation, but nevertheless still quite simple, let me state what I think is a key defect in your arguments. You are apparently not recognizing that as productivity grows the amount of money in the economy must grow with it to prevent deflation and to maintain a constant value of the currency. That requires that the government spend more into the economy than it taxes back out, i.e., deficit spending is a requirement under such a circumstance!

The government spends money into its economy and taxes it back out. To maintain a constant value of the currency, as long as population and productivity grow, the amount of money in the economy must grow as well. The debt, when it is matched to deficits, is equal to the money created and spent into the economy minus the amount taxed back out. If more money is needed in the economy the government must spend more into the economy than it taxes back out, and vice versa.

Because in the U.K. and in the U.S. both population and productivity have grown over the years, these governments must run a net deficit to maintain a constant value of the currency. No country with its own fiat money must borrow to be able to spend in excess of its revenue. For these countries bonds serve a different purpose than the raising of money. The issuance of bonds only appears to be a means of the government raising money. ​

The bonds issued by countries with their own currencies don't have to be paid off, but they do have to be serviced. As the servicing of debt is just like any other spending into the economy, the amount of debt servicing has to be included in the total of money spent into the economy (i.e., "outside money'). As debt servicing is not discretionary, whereas some other types of sovereign spending are discretionary, the total amount of debt servicing has to be paid attention and not allowed to grow to the point that it impinges on other necessary, non-discretionary spending to the extent it would cause excessive inflation. It is possible that a government, via excessive spending, could find itself in a debt servicing crisis where it would be forced to pay off some of its debt. That's why excessive deficits over time could lead to trouble. But in general a Nation that runs its economy well, will never have to pay off its debt, and certainly never all its debt. For countries that target a small positive inflation, the real debt is constantly being reduced via inflation and this acts as a counter to growing debt servicing.

The government can only pay off bonds issued in excess of what is warranted by population and productivity growth, plus any built in positive inflation target, without causing deflation. Any significant deflation in an economy that runs on credit is ruinous.

 

[morganist]

I don't think this is the first time I have mentioned to you how absurd this idea of yours is that sovereign debt should be repaid. This is such an easy thing to understand I don't know why it can't sink in with you. I'll explain it very simply. But before I launch into a more detailed explanation, but nevertheless still quite simple, let me state what I think is a key defect in your arguments. You are apparently not recognizing that as productivity grows the amount of money in the economy must grow with it to prevent deflation and to maintain a constant value of the currency. That requires that the government spend more into the economy than it taxes back out, i.e., deficit spending is a requirement under such a circumstance!

The government spends money into its economy and taxes it back out. To maintain a constant value of the currency, as long as population and productivity grow, the amount of money in the economy must grow as well. The debt, when it is matched to deficits, is equal to the money created and spent into the economy minus the amount taxed back out. If more money is needed in the economy the government must spend more into the economy than it taxes back out, and vice versa.

Because in the U.K. and in the U.S. both population and productivity have grown over the years, these governments must run a net deficit to maintain a constant value of the currency. No country with its own fiat money must borrow to be able to spend in excess of its revenue. For these countries bonds serve a different purpose than the raising of money. The issuance of bonds only appears to be a means of the government raising money. ​

The bonds issued by countries with their own currencies don't have to be paid off, but they do have to be serviced. As the servicing of debt is just like any other spending into the economy, the amount of debt servicing has to be included in the total of money spent into the economy (i.e., "outside money'). As debt servicing is not discretionary, whereas some other types of sovereign spending are discretionary, the total amount of debt servicing has to be paid attention and not allowed to grow to the point that it impinges on other necessary, non-discretionary spending to the extent it would cause excessive inflation. It is possible that a government, via excessive spending, could find itself in a debt servicing crisis where it would be forced to pay off some of its debt. That's why excessive deficits over time could lead to trouble. But in general a Nation that runs its economy well, will never have to pay off its debt, and certainly never all its debt. For countries that target a small positive inflation, the real debt is constantly being reduced via inflation and this acts as a counter to growing debt servicing.

The government can only pay off bonds issued in excess of what is warranted by population and productivity growth, plus any built in positive inflation target, without causing deflation. Any significant deflation in an economy that runs on credit is ruinous.

The article states this is the technique used to not have to repay government debt, but to outgrow it and shrink it as a percentage of GDP. Your comments make me think you have not read the article as they are in line with the agenda of the article, which agrees with your point the government debt does not need to be repaid but shrunk as a percentage of GDP. The method put forward is to increase the number of transaction within an economy by requiring superior placement of pension fund investments, 'Pension Fund Easing'.

In terms of your explanation about the need for the government to spend money in the economy to enable growth, you have missed out the velocity of money function and how GDP is calculated. The GDP is the number of transactions performed within an economy over a set period of time. The same number of monetary units are used within that economy time and time again and by using them a greater of number of times increases the GDP, effectively speeding up the velocity of transactions.

As long as the number of resources in the economy or the number of resources to purchase outside of the economy are available to the consumer you will not see inflation. If goods and services are available with a higher monetary demand prices should remain stable. The greater demand created by the higher rate of transactions should lead to greater revenue for businesses and a higher turnover in trade. This is real economic growth and is possible by investing pension funds in the most liquid and commercially active operating investments.

I have had a look and you have not read past paragraph two. Paragraph three is below and you can read the whole of the article on the first page of the thread.

"There is another method of reducing the total government debt to GDP that can be achieved without having to pay off any of the outstanding government debts. Increasing economic growth will reduce the amount of total government debt as a percentage of GDP, reducing the relative amount of money the government has to pay back from future revenue. The increase in GDP also boosts future governmental revenue streams making it easier to pay the debt off."

 

[piezoe]

In terms of your explanation about the need for the government to spend money in the economy to enable growth,

It is not to enable growth, but because of growth the government must increase the effective amount of money in the private sector economy if deflation is to be avoided. The government can also spend to enable growth, but that's another issue.

 

[morganist]

It is not to enable growth, but because of growth the government must increase the effective amount of money in the private sector economy if deflation is to be avoided. The government can also spend to enable growth, but that's another issue.

I think you are confusing the production of monetary units (controlled by the central bank) that are finite but can be used many times to make transactions with and the active economy that uses the same monetary units many times to make the transactions. No new monetary units have to be created but the number of transactions has to increase to expand GDP, this is shown on banks inflow and outflow of deposits and payments.

When all of the transactions are added up over a set period of time this is the monetary GDP. The same monetary units are used multiple times to get to this sum. The amount left in bank accounts may total the monetary units the central bank has produced and allows to operate in an economy, but they have been paid in and out of bank accounts many times to spend and generate the GDP.

You seem to be confusing the finite monetary unit supply the central bank allows to operate with the total sum of transactions that have occurred in an economy over a set period of time. Many factors increase the number of transactions and it is referred to as the 'Velocity of Money'. My hope is to increase the 'Velocity of Money' by directing pension fund investments into more liquid (quickly spending) investment entities.

 

[piezoe]

"There is another method of reducing the total government debt to GDP that can be achieved without having to pay off any of the outstanding government debts. Increasing economic growth will reduce the amount of total government debt as a percentage of GDP, reducing the relative amount of money the government has to pay back from future revenue. The increase in GDP also boosts future governmental revenue streams making it easier to pay the debt off."

I agree with this. However keep in mind that the effective money supply (that takes velocity into account) must grow with GDP to maintain stable buying power for the currency.. If you had outsize inflation already existing, increasing GDP without further deficit spending could tame it. But if you have a stable currency and GDP increases significantly, yes you can indeed reduce government debt, but not without causing deflation! In the instance of increasing GDP on top of a stable currency you will have to have deficit spending to prevent deflation. I am of course referring to aggregate responses over time and the mean result.

What you are suggesting when you write:

Increasing economic growth will reduce the amount of total government debt as a percentage of GDP, reducing the relative amount of money the government has to pay back from future revenue. The increase in GDP also boosts future governmental revenue streams making it easier to pay the debt off.
​

is defective in it's reasoning, because you have failed to take into account deflation caused by the amount of outside money spent into the economy not keeping up with GDP. Under the circumstances you invoke, the nominal amount of money the government must pay does not change. But it's purchasing value increases because of deflation. The government will pay maturing bonds with money that has increased in purchasing power and will pay a higher real rate to service outstanding bonds. This does not help the government pay of its debt. Revenue increases do compensate, but not necessarily in proportion. The only circumstance where what you propose is useful is if the deficit increases less than the increase in GDP and inflation is already higher that it's target. Under those circumstances, increasing GDP, although still deflationary, will bring the inflation rate down closer to its target without risking damaging deflation.

 

[piezoe]

I think you are confusing the production of monetary units (controlled by the central bank) that are finite but can be used many times to make transactions with and the active economy that uses the same monetary units many times to make the transactions. No new monetary units have to be created but the number of transactions has to increase to expand GDP, this is shown on banks inflow and outflow of deposits and payments.

by default, I am always including the impact of money velocity were it is relevant and not where it is not. The government spends outside money into the economy and taxes money back out always in nominal terms. That money's effect in the economy is a function of its velocity which is largely dependent on credit demand and business conditions. This is something quite apart from what you or I have been discussing. It must be so, because government policy largely reacts to, rather than dictating, business conditions and credit demand. Try to stay focused. You'll only get more confused by including irrelevant factors, as Hayek eventually realized.

 

[morganist]

by default, I am always including the impact of money velocity were it is relevant and not where it is not. The government spends outside money into the economy and taxes money back out always in nominal terms. That money's effect in the economy is a function of its velocity which is largely dependent on credit demand and business conditions. This is something quite apart from what you or I have been discussing. It must be so, because government policy largely reacts to, rather than dictating, business conditions and credit demand. Try to stay focused. You'll only get more confused by including irrelevant factors, as Hayek eventually realized.

In terms of the original thread post, which I am not sure that you have read yet, it is dead on the topic. In terms of money velocity, which you see as being related to credit demand and business conditions. Perhaps you should be looking more at the direction of 'who' receives the money to fund business operations and how liquid their business operations are. I term this process 'Liquidity Efficiency' and 'Demand Fortification'.

 

[SunTrader]

...., because government policy largely reacts to, rather than dictating, business conditions and credit demand...

Disagree with that to a certain extent but I'll not entangle myself in the weeds ... so forget what I just said.

 

[piezoe]

In terms of the original thread post, which I am not sure that you have read yet, it is dead on the topic. In terms of money velocity, which you see as being related to credit demand and business conditions. Perhaps you should be looking more at the direction of 'who' receives the money to fund business operations and how liquid their business operations are. I term this process 'Liquidity Efficiency' and 'Demand Fortification'.

Finally we agree on something. Economists should look at location of money ("who receives the money") within the economy.. It's a subject that has not been researched in nearly enough depth.