Ask an Economist (Post #1005 and counting)

[JerichoHill]

No, I don't see it playing a part in our budget woes since its composition of our budget has either declined or stayed even during the period that our national debt has grown (80s-present). If I'm trying to get a correlation or regression with a variable that has seen little variation across my observations, I'm not going to be able to attribute alot of significance to that variable, plain and simple mathematics there.

Assuming that the US military budget matched other Western countries, the US would still be sizeably larger because its economy is so much larger. But see, we're not getting to your point.

What is the cause of our increasing debt in our budget? I'll acknowledge that we could have save a good amount of money by avoiding Iraq and its costs, and we could have saved money by cutting our military to a degree, but that won't make up for the shortfall, more like a bandaid on the wrong part of the body.

Here's the budget makeup for the 08 budget: Now, I don't know about many folks, but I do see some problems in the distribution of our expenses.

"Table 3.1: outlays by superfunction and function: 1940--2009," in Office of Management and Budget, Historical Tables, Budget of the United States Government, Fiscal Year 2005 (2004), Washington, pp. 45--52
[2] "Public Budget Database, Budget of the United States Government, Fiscal Year 2005" (2004) (database)

What caused the increase in US national debt? It's an amazingly simple answer. During the Clinton Administration, government outlays increased at a far less rate than the economy did, so we eventually grew ourselves into a surplus.

What I find amazing is that we spend so much time debating what programs to fund or cut, when we do not need to cut any programs, but rather grow our government spending a little less than our economy grows (we can even allow for Keynesian style fiscal stimuluses) and this being done consistently solves the problem over time rather easily.

 

[innonimatu]

What was the purpose of bank reserves, and can american banks do away entirety with the requirement for reserves?

 

[JerichoHill]

http://www.federalreserve.gov/monetarypolicy/reservereq.htm

Reserve requirements are the amount of funds that a depository institution must hold in reserve against specified deposit liabilities. Within limits specified by law, the Board of Governors has sole authority over changes in reserve requirements. Depository institutions must hold reserves in the form of vault cash or deposits with Federal Reserve Banks.

The dollar amount of a depository institution's reserve requirement is determined by applying the reserve ratios specified in the Federal Reserve Board's Regulation D to an institution's reservable liabilities (see table of reserve requirements). Reservable liabilities consist of net transaction accounts, nonpersonal time deposits, and eurocurrency liabilities. Since December 27, 1990, nonpersonal time deposits and eurocurrency liabilities have had a reserve ratio of zero.

The reserve ratio on net transactions accounts depends on the amount of net transactions accounts at the depository institution. The Garn-St Germain Act of 1982 exempted the first $2 million of reservable liabilities from reserve requirements. This "exemption amount" is adjusted each year according to a formula specified by the act. The amount of net transaction accounts subject to a reserve requirement ratio of 3 percent was set under the Monetary Control Act of 1980 at $25 million. This "low-reserve tranche" is also adjusted each year (see table of low-reserve tranche amounts and exemption amounts since 1982). Net transaction accounts in excess of the low-reserve tranche are currently reservable at 10 percent.

If they did away with the fractional reserve requirement, I think it would be highly detrimental to the financial health of our country, and many others

 

[ainwood]

OUt of the total budget (graph above), I see that the US allocated 10% of total spend to "health" and 12% to medicare.

1.) What is the "health" actually covering? Is this people without insurance?
2.) Medicare == "free" insurance for elderly, doesn't it?
3.) What is the actual value of this allocation? What is it in terms of spend / capita?


This piqued my interest in respect to the universal health care thread. I recall an article that suggested that the US government still spends more, per capita, on healthcare than many other countries, despite the fact that most of the US healthcare costs are privatised.

 

[innonimatu]

If they did away with the fractional reserve requirement, I think it would be highly detrimental to the financial health of our country, and many others

Thank you. I was asking because I saw some people (mostly supporters of one of the american presidential candidates who cannot possibly win) very scandalized with the second column on this table, non-borrowed reserves of Depository Institutions, apparently showing negative real reserves for the aggregate of US banking institutions, for what they commented was the first time ever.

Can this be interpreted as meaning that, for all practical purposes, the requirement for reserves is suspended, for as long as those term auction credit operations last?

 

[Integral]

OUt of the total budget (graph above), I see that the US allocated 10% of total spend to "health" and 12% to medicare.

1.) What is the "health" actually covering? Is this people without insurance?
2.) Medicare == "free" insurance for elderly, doesn't it?
3.) What is the actual value of this allocation? What is it in terms of spend / capita?


This piqued my interest in respect to the universal health care thread. I recall an article that suggested that the US government still spends more, per capita, on healthcare than many other countries, despite the fact that most of the US healthcare costs are privatised.

I can help slightly with the third question.

22% of Federal expenditures equals roughly $600 billion; that count is a bit low, because the BEA's accounts* say that Federal health spending in 2006 was $680 billion. (The BEA doesn't distinguish between health spending and Medicare.) So the Federal government spends $2000-$2250 on health per capita per year.

*Bureau of Economic Analysis, National Income and Product Accounts Table 3.16; available here (just scroll down to Table 3.16).

 

[ainwood]

I can help slightly with the third question.

22% of Federal expenditures is roughly $600 billion; that count is a bit low, because the BEA's accounts* say that Federal health spending in 2006 was $680 billion. (The BEA doesn't distinguish between health spending and Medicare; it lumps both into health spending.) So the Federal government spends $2000-$2250 on health per capita per year.

*Bureau of Economic Analysis, National Income and Product Accounts Table 3.16; available here (just scroll down to Table 3.16).

Thanks!

So this does confirm my recollection. Hypothetically, the US could implement a universal healthcare system that is identical to say France, Australia or the UK, and it would cost not a sent more than the one they have at the moment.

 

[Homie]

Maybe so. But here in the US I can (and have) get an appointment the same I call for one, and choose between several doctors freely, and this in a small city of 8000 people. Back home in Norway in a big city of 110,000 (200,000 if you count the neighbouring cities, which are only 5 minutes away) I couldn't do that.

 

[JerichoHill]

Thank you. I was asking because I saw some people (mostly supporters of one of the american presidential candidates who cannot possibly win) very scandalized with the second column on this table, non-borrowed reserves of Depository Institutions, apparently showing negative real reserves for the aggregate of US banking institutions, for what they commented was the first time ever.

Can this be interpreted as meaning that, for all practical purposes, the requirement for reserves is suspended, for as long as those term auction credit operations last?

I am not aware of the reserve requirement being suspended.

The table as I interpret it says total, non-borrowed, and required. Total reserves need to be more than required as I understand it. Excess reserves is positive for all time periods.

 

[JerichoHill]

Oh, the fiscal stimulus just stalled in the senate

 

[Norseone]

So Jericho, whats the chances the stimulus package will help avoid a recession?

 

[Integral]

Oh, the fiscal stimulus just stalled in the senate

Thank God. Hopefully it dies there.

 

[The Yankee]

Thank God. Hopefully it dies there.

Because of a Republican filibuster! You know, what they wanted to get rid of in 2005.

link

Senate GOPs Block Stimulus Provisions For Elderly, Veterans

February 06, 2008

Some senate Republicans have blocked a bill that would have added $44 billion to President Bush's economic stimulus package.

The additional money was intended for the elderly, disabled veterans, and unemployed.

In a vote of 58 to 41, lawmakers fell just short of the 60 votes needed to keep the bill alive with the provisions.

The measure was supported by Democrats as well as some Republicans, but faced strong opposition from other GOP leaders.

The president says any additional provisions that would increase the cost of the package or delay it's passage is unacceptable.

The stimulus package was passed by the House last week and is expected to provide rebate checks to most tax payers.

Fun for the whole family!

Kinda odd that President Bush would say that federal spending is needed to provide a stimulus, but heaven forbid we tack on another $44 billion!

Washington....

 

[Godwynn]

Because of a Republican filibuster! You know, what they wanted to get rid of in 2005.

I believe the Democrats wanted to get rid of it in the early 1990's. They are short sighted.

 

[The Yankee]

So, we can safely say that any request to end the filibuster means that they will be out of power in the next cycle.

Got it.

 

[Godwynn]

So, we can safely say that any request to end the filibuster means that they will be out of power in the next cycle.

Got it.

Exactly, it means that party is so full of themselves that they have become pretentious, arrogant, and stupid. Usually the precursors to someone losing an election.

 

[JerichoHill]

So Jericho, whats the chances the stimulus package will help avoid a recession?

Nil.
Too late.

 

[The Fjonis]

I have a question:

I heard somewhere (can't remember the source) that in highly developed industrial countries, within 50 years only 1/3 of the workforce will actually have to work in order to support everyone else ("keep the wheels of the economy turning"). Have you heard anything similar, or is this just utter BS? (by workforce I mean people aged ~ 20-65)

Thanks.

 

[DNK]

I got some fun questions. This from a debate over petrodollars, currently ongoing in CF.

I'm going to post some of the points made supporting the case that petrodollars are an all-important aspect of US foreign and economic policy.

You don't need to answer them all, and if you just want to direct me to resources to find the answers, that would be fine. I'm just not quite understanding the complexities of international money flows to be able to appreciate the various stands in the debate.

strike….If OPEC decided they didn't want dollars anymore, it would signal an end of American hegemony by signaling an end to the dollar as the sole reserve currency status.

#1

No other hard currency guarantees access to the most valuable
commodity on earth — oil. Furthermore, no other hard currency possesses the unique “storage of
wealth” that is realized by the dollar as the monopoly currency for international oil trades.

#2

Because 65% of international trade today is conducted in dollars, other countries must engage in active trade relations with the US to obtain the means of payment (or “petrocurrency”) for their “oil bill” that they cannot themselves issue.

#3

Because of the dollar’s monopoly transaction status as established by OPEC in 1975, all oil importing nations need to obtain highly liquid dollar-denominated instruments with which to purchase oil. This means their trade targets are countries that use the dollar, with the US consumer being the main target for export products of any nation seeking to build dollar reserves. To keep this process going, the US has arranged to be importer and consumer of last resort. The central banks of Japan, China, South Korea, and numerous other countries buy US Treasury securities with their dollars to facilitate the $5+ billion dollar per day international oil trade. This ensures the dollar’s international liquidity, which in turn allows the US to have a stable dollar and lower interest rates relative to the rest of the world, while running a $400 billion to $800 billion annual balance-of-payments deficit. Most countries are forced to control their trade deficits or face either currency devaluation or even currency collapse. Such is not the case in the US, whose number one export product is now the dollar itself.

#4

Some economic commentators view the dollar–oil nexus from a one-dimensional “transactional” perspective, and argue that what really matters is where the oil proceeds are invested. While this may apply from the oil buyers’ and sellers’ viewpoint, importantly, it does not reflect the issuer’s
perspective regarding the monopoly currency for international oil trades — the Federal Reserve. The incremental global demand for oil, and thus demand for monopoly petrodollars to complete the transactions with OPEC et al, provides the Fed with an automatic demand for US dollars that today approaches $1.8 trillion annually, regardless of the dollar’s valuation relative to other currencies.

#5

Most importantly, this system is currently funding approximately $1 billion per day of the $2.2 billion per day US current account deficit, a significant macroeconomic benefit that allows the United States to borrow far more than it produces.

#6

The rapid and sustained increase of international oil prices is the main factor behind the growth in foreign holdings of US securities and the external supply of dollars used to purchase these securities.

#7

Arab states are now major
buyers of goods from Japan, China, and the rest of Asia, where
they sell the bulk of their oil. So these petrodollars get recycled
as Japanese yen or Chinese yuan – which the Japanese and
Chinese governments convert into US Treasuries. Indirectly,
then, oil money is bankrolling US deficit spending. Paul
Donovan, a global economist for UBS Investment Bank in
London, estimates that petrodollars, mostly channeled through
Asia and Europe, are funding up to 45% of the US current
account deficit.

#7

In summary, the Federal Reserve controls the dollar printing presses, and the world needs dollars
as the transaction currency when paying its “oil bill.” As long as global demand for oil increases
incrementally (approximately 2 percent per year, with petrodollar flows in 2006 of about $1.8 trillion),
the demand for monopoly petrodollars to conduct these transactions will also increase, regardless of
the performance of the US currency or the American economy. Given today’s absence of scaleable
substitutes for liquid fuels, in economic terms, the global demand for oil is relatively inelastic.

#8

The second part of the loan was from all other economies that had to pay dollars for oil
but could not print [US] currency. Those economies had to trade their goods and services
for dollars in order to pay OPEC. Again, so long as OPEC held the dollars rather than
spending them, the U.S. received a loan.

#9

#10. Where would I go to find the total amount of international trade and US trade figures?

 

[Whomp]

Regarding #10--I think there's some difference of opinion on trade numbers. Some believe that the currently reported trade numbers are antiquated. The thinking is US affliated companies should be included in trade figures and they are not. These figures are somewhere around $3 trillion between Europe and the US.

http://www.iht.com/articles/2007/08/05/bloomberg/bxatm.php

As far as the other questions I'll stand by my posts in the other thread that the "petrodollar theory" is a myth. Everyone has access to eurodollars and there's minimal benefit to the US by oil trading in dollars. Maybe a few billion for the free float in the NY banks which is nothing when you consider a $14 trillion economy.

So just like sovereign wealth funds from oil producing nations invest their money to diversify so do American corporations. Both are flush with cash right now.