Social Security Discussion

[Kimura]

One's financial asset is offset by a another's financial liability.

So if I buy a new issue at $20, the issuing firm has a liability of $20.
Now the stock goes up to $30. I think financial assets are now larger than liabilities.
How am I wrong?

Individuals or firms selling stocks have bank accounts, right? For example, if an investor purchases assets from a seller, such as a corporate bonds or stocks, then payments are made from the bank to the seller. In order for any payments to be cleared and settled, a debit will be made from the reserve account of the bank buying these assets to the reserve account of the seller’s bank. Total net bank reserves are unaffected (unless the seller has a deposit account at the purchasing bank, then the bank will just credit more $$$$ to seller’s deposit account, both the bank’s reserves and aggregate reserves will remain unaffected).

Chicken vs. egg. What came first the shinny new dollar bill or the apple I pulled off the tree and sold to you for a dollar. News flash I'll trade you that orange you have for an apple. Oh wait where's the dollar in that deal?

Sellers and purchasers bank accounts will be cleared and settled regardless.

 

[RKMBrown]

Individuals or firms selling stocks have bank accounts, right? For example, if an investor purchases assets from a seller, such as a corporate bonds or stocks, then payments are made from the bank to the seller. In order for any payments to be cleared and settled, a debit will be made from the reserve account of the bank buying these assets to the reserve account of the seller’s bank. Total net bank reserves are unaffected (unless the seller has a deposit account at the purchasing bank, then the bank will just credit more $$$$ to seller’s deposit account, both the bank’s reserves and aggregate reserves will remain unaffected).

Chicken vs. egg. What came first the shinny new dollar bill or the apple I pulled off the tree and sold to you for a dollar. News flash I'll trade you that orange you have for an apple. Oh wait where's the dollar in that deal?

Sellers and purchasers bank accounts will be cleared and settled regardless.

Irrelevant. I can have assets that have absolutely no association with a bank account.

 

[Kimura]

Chicken vs. egg. What came first the shinny new dollar bill or the apple I pulled off the tree and sold to you for a dollar. News flash I'll trade you that orange you have for an apple. Oh wait where's the dollar in that deal?

Sellers and purchasers bank accounts will be cleared and settled regardless.

Irrelevant. I can have assets that have absolutely no association with a bank account.

Well....I'm assuming you're referring to real assets. This is actually a valid point. What if I use my savings (budget surplus) to buy real assets as opposed to financial assets? In this type of situation, financial assets are transferred to someone else. If I spend less than my income, I accrue deposits in my checking account. If I decide that I no longer desire to hold savings in my deposit account, I can write a check to buy silver, gold, diamonds, a car, real estate, collectibles, a business, etc. I've converted a financial asset into a real asset. The seller has done the opposite and now holds the financial assets.

This brings us back to sectoral balances model in the general economy once again. We've come full circle.

If the domestic private sector runs a budget surplus, someone must accrue net financial assets - or what can be defined as claims on another sector, but our economic activity in the private sector simply moves net financial assets from one pocket to another pocket.

 

[RKMBrown]

Sellers and purchasers bank accounts will be cleared and settled regardless.

Irrelevant. I can have assets that have absolutely no association with a bank account.

Well....I'm assuming you're referring to real assets. This is actually a valid point. What if I use my savings (budget surplus) to buy real assets as opposed to financial assets? In this type of situation, financial assets are transferred to someone else. If I spend less than my income, I accrue deposits in my checking account. If I decide that I no longer desire to hold savings in my deposit account, I can write a check to buy silver, gold, diamonds, a car, real estate, collectibles, a business, etc. I've converted a financial asset into a real asset. The seller has done the opposite and now holds the financial assets.

This bring us back to sectoral balances in the general economy once again. We've come full circle.

If the domestic private sector runs a budget surplus, someone must accrue net financial assets - or what can be defined as claims on another sector, but our economic activity in the private sector simply moves net financial assets from one pocket to another pocket.

It comes down to definitions of terms and context.

I can create a software company, write an application, get the company's value appraised based on the estimated value of the application, write down that value as an asset of the company and as a liability to the owner. Further, I can trade that asset for other assets and labor priced in a similar way. IOW the statement that government spends money into existence, does not mean assets can't be created in the absence of said spending. Still further I can sell shares in other currencies and for other types of physical assets. There's more than one way to dig for gold than to spend it into existence.

Said another way, I look at the expansion of credit as... wait for it... an expansion of credit. Not as spending money into existence. The fact that the initial lending is backed by fairy dust merely means that the value of the dollar ain't what it used to be. The natural result of which is... inflation. It also means one is better off holding physical assets than cash over time given the fed's job of fairy dusting money into existence.

 

[Toddsterpatriot]

I'm talking about net financial assets. One's financial asset is offset by a another's financial liability. Bonds and currency are financial assets. In the aggregate, as a matter of accounting, net financial wealth must ultimately equal zero.

REAL assets aren't offset by another liability which means at the aggregate level net wealth would equal the value of real assets. For example, you may have purchased and automobile and went into debt. The car note (financial liability) would be offset by the financial asset held by the loan company. Since they ultimately net to zero, what we have left is the value of the real asset - the automobile.

Sorry about the confusion. I'm mostly concerned about with financial assets when discussing macro and monetary operations, but I will try to remember that real assets provide net wealth at aggregate and individual levels so to speak. If we subtract any and all financial liabilities from total assets - both financial and real - we're only left with real assets (aggregate net worth).

One's financial asset is offset by a another's financial liability.

So if I buy a new issue at $20, the issuing firm has a liability of $20.
Now the stock goes up to $30. I think financial assets are now larger than liabilities.
How am I wrong?

Individuals or firms selling stocks have bank accounts, right? For example, if an investor purchases assets from a seller, such as a corporate bonds or stocks, then payments are made from the bank to the seller. In order for any payments to be cleared and settled, a debit will be made from the reserve account of the bank buying these assets to the reserve account of the seller’s bank. Total net bank reserves are unaffected (unless the seller has a deposit account at the purchasing bank, then the bank will just credit more $$$$ to seller’s deposit account, both the bank’s reserves and aggregate reserves will remain unaffected).

Total net bank reserves are unaffected (unless the seller has a deposit account at the purchasing bank, then the bank will just credit more $$$$ to seller’s deposit account, both the bank’s reserves and aggregate reserves will remain unaffected).

I agree, bank reserves in total are unchanged.
Doesn't change the fact that assets increased while liabilities remained unchanged.
Despite your belief that that is impossible.

 

[Kimura]

I agree, bank reserves in total are unchanged.
Doesn't change the fact that assets increased while liabilities remained unchanged.
Despite your belief that that is impossible.

I never said that that the value of your stock portfolio can't increase. You used that example.

I'm talking in the context of sectoral balances between the domestic private sector, domestic government sector, and the foreign sector. This was the original context whereby we must realize that the financial liabilities of the government sector, in the form of cash and bonds, are assets to the non-government as a matter of accounting.

In this approach, we also have outside wealth and inside wealth. For example, if we were to take any and all privately-issued liabilities and assets, the sum total of financial assets must equal liabilities. Net financial wealth must be zero if we take into account any private sector IOUs. This is inside private wealth as it's inside the private sector so to speak.

Also, in order for the private sector accrue net financial wealth, it must done through outside wealth (financial claims on another sector). This outside wealth consists of government IOUs. The private sector must hold government currency and bonds which makes up a portion of its net wealth.

 

[Toddsterpatriot]

I agree, bank reserves in total are unchanged.
Doesn't change the fact that assets increased while liabilities remained unchanged.
Despite your belief that that is impossible.

I never said that that the value of your stock portfolio can't increase. You used that example.

I'm talking in the context of sectoral balances between the domestic private sector, domestic government sector, and the foreign sector. This was the original context whereby we must realize that the financial liabilities of the government sector, in the form of cash and bonds, are assets to the non-government as a matter of accounting.

In this approach, we also have outside wealth and inside wealth. For example, if we were to take any and all privately-issued liabilities and assets, the sum total of financial assets must equal liabilities. Net financial wealth must be zero if we take into account any private sector IOUs. This is inside private wealth as it's inside the private sector so to speak.

Also, in order for the private sector accrue net financial wealth, it must done through outside wealth (financial claims on another sector). This outside wealth consists of government IOUs. The private sector must hold government currency and bonds which makes up a portion of its net wealth.

I never said that that the value of your stock portfolio can't increase.

You said, "net financial wealth must ultimately equal zero"

I don't believe you.

we must realize that the financial liabilities of the government sector, in the form of cash and bonds, are assets to the non-government as a matter of accounting.

Every liability is owned by someone, that doesn't mean that "net financial wealth must ultimately equal zero".

 

[Kimura]

Irrelevant. I can have assets that have absolutely no association with a bank account.

Well....I'm assuming you're referring to real assets. This is actually a valid point. What if I use my savings (budget surplus) to buy real assets as opposed to financial assets? In this type of situation, financial assets are transferred to someone else. If I spend less than my income, I accrue deposits in my checking account. If I decide that I no longer desire to hold savings in my deposit account, I can write a check to buy silver, gold, diamonds, a car, real estate, collectibles, a business, etc. I've converted a financial asset into a real asset. The seller has done the opposite and now holds the financial assets.

This bring us back to sectoral balances in the general economy once again. We've come full circle.

If the domestic private sector runs a budget surplus, someone must accrue net financial assets - or what can be defined as claims on another sector, but our economic activity in the private sector simply moves net financial assets from one pocket to another pocket.

It comes down to definitions of terms and context.

I can create a software company, write an application, get the company's value appraised based on the estimated value of the application, write down that value as an asset of the company and as a liability to the owner. Further, I can trade that asset for other assets and labor priced in a similar way. IOW the statement that government spends money into existence, does not mean assets can't be created in the absence of said spending. Still further I can sell shares in other currencies and for other types of physical assets. There's more than one way to dig for gold than to spend it into existence.

Said another way, I look at the expansion of credit as... wait for it... an expansion of credit. Not as spending money into existence. The fact that the initial lending is backed by fairy dust merely means that the value of the dollar ain't what it used to be. The natural result of which is... inflation. It also means one is better off holding physical assets than cash over time given the fed's job of fairy dusting money into existence.

For all intents and purposes, base money is spent into existence. Literally.

 

[Kimura]

I agree, bank reserves in total are unchanged.
Doesn't change the fact that assets increased while liabilities remained unchanged.
Despite your belief that that is impossible.

I never said that that the value of your stock portfolio can't increase. You used that example.

I'm talking in the context of sectoral balances between the domestic private sector, domestic government sector, and the foreign sector. This was the original context whereby we must realize that the financial liabilities of the government sector, in the form of cash and bonds, are assets to the non-government as a matter of accounting.

In this approach, we also have outside wealth and inside wealth. For example, if we were to take any and all privately-issued liabilities and assets, the sum total of financial assets must equal liabilities. Net financial wealth must be zero if we take into account any private sector IOUs. This is inside private wealth as it's inside the private sector so to speak.

Also, in order for the private sector accrue net financial wealth, it must done through outside wealth (financial claims on another sector). This outside wealth consists of government IOUs. The private sector must hold government currency and bonds which makes up a portion of its net wealth.

I never said that that the value of your stock portfolio can't increase.

You said, "net financial wealth must ultimately equal zero"

I don't believe you.

we must realize that the financial liabilities of the government sector, in the form of cash and bonds, are assets to the non-government as a matter of accounting.

Every liability is owned by someone, that doesn't mean that "net financial wealth must ultimately equal zero".

These are basic accounting principles. If we add up the sum total of deficits run by one or more sectors, they must equal surpluses run by other sectors. It all nets to zero.

Domestic Private Sector + Domestic Private Sector + Foreign Sector = 0

 

[Toddsterpatriot]

I never said that that the value of your stock portfolio can't increase. You used that example.

I'm talking in the context of sectoral balances between the domestic private sector, domestic government sector, and the foreign sector. This was the original context whereby we must realize that the financial liabilities of the government sector, in the form of cash and bonds, are assets to the non-government as a matter of accounting.

In this approach, we also have outside wealth and inside wealth. For example, if we were to take any and all privately-issued liabilities and assets, the sum total of financial assets must equal liabilities. Net financial wealth must be zero if we take into account any private sector IOUs. This is inside private wealth as it's inside the private sector so to speak.

Also, in order for the private sector accrue net financial wealth, it must done through outside wealth (financial claims on another sector). This outside wealth consists of government IOUs. The private sector must hold government currency and bonds which makes up a portion of its net wealth.

I never said that that the value of your stock portfolio can't increase.

You said, "net financial wealth must ultimately equal zero"

I don't believe you.

we must realize that the financial liabilities of the government sector, in the form of cash and bonds, are assets to the non-government as a matter of accounting.

Every liability is owned by someone, that doesn't mean that "net financial wealth must ultimately equal zero".

These are basic accounting principles. If we add up the sum total of deficits run by one or more sectors, they must equal surpluses run by other sectors. It all nets to zero.

Domestic Private Sector + Domestic Private Sector + Foreign Sector = 0

Fine.

Still doesn't make this claim---->"net financial wealth must ultimately equal zero"
true.

 

[Kimura]

For the sake of argument, let's say that foreign sector is running a balanced budget. Let's also say the domestic private sector's income is $300 billion while its spending is $280 billion, which gives us a budget surplus of $20 billion for the course of the year. By accounting identity alone, the domestic government sector's budget deficit for the same year will be equal to $20 billion. It's apparent that the domestic private sector will accrue $20 billion of net financial wealth during the year which consists of $20 billion in government sector liabilities. It nets to zero.

 

[Toddsterpatriot]

For the sake of argument, let's say that foreign sector is running a balanced budget. Let's also say the domestic private sector's income is $300 billion while its spending is $280 billion, which gives us a budget surplus of $20 billion for the course of the year. By accounting identity alone, the domestic government sector's budget deficit for the same year will be equal to $20 billion. It's apparent that the domestic private sector will accrue $20 billion of net financial wealth during the year which consists of $20 billion in government sector liabilities. It nets to zero.

Fine.

Still doesn't make this claim---->"net financial wealth must ultimately equal zero"
true.

It's apparent that the domestic private sector will accrue $20 billion of net financial wealth during the year which consists of $20 billion in government sector liabilities.

You're assuming that all financial wealth is debt.

 

[Kimura]

For the sake of argument, let's say that foreign sector is running a balanced budget. Let's also say the domestic private sector's income is $300 billion while its spending is $280 billion, which gives us a budget surplus of $20 billion for the course of the year. By accounting identity alone, the domestic government sector's budget deficit for the same year will be equal to $20 billion. It's apparent that the domestic private sector will accrue $20 billion of net financial wealth during the year which consists of $20 billion in government sector liabilities. It nets to zero.

Fine.

Still doesn't make this claim---->"net financial wealth must ultimately equal zero"
true.

It's apparent that the domestic private sector will accrue $20 billion of net financial wealth during the year which consists of $20 billion in government sector liabilities.

You're assuming that all financial wealth is debt.

I'm not assuming anything. These are basic accounting principles. I'll come up with another example at some point.

 

[Kimura]

Let's use some averages:

A private sector surplus of roughly 2% of GDP, a government deficit of 5% of GDP, and a current account deficit of 3%. Again, it all nets to ZERO.

Private sector balance (+2) + Government sector balance (-5) + Foreign sector balance (+3) = 0

 

[Toddsterpatriot]

For the sake of argument, let's say that foreign sector is running a balanced budget. Let's also say the domestic private sector's income is $300 billion while its spending is $280 billion, which gives us a budget surplus of $20 billion for the course of the year. By accounting identity alone, the domestic government sector's budget deficit for the same year will be equal to $20 billion. It's apparent that the domestic private sector will accrue $20 billion of net financial wealth during the year which consists of $20 billion in government sector liabilities. It nets to zero.

Fine.

Still doesn't make this claim---->"net financial wealth must ultimately equal zero"
true.

It's apparent that the domestic private sector will accrue $20 billion of net financial wealth during the year which consists of $20 billion in government sector liabilities.

You're assuming that all financial wealth is debt.

I'm not assuming anything. These are basic accounting principles. I'll come up with another example at some point.

My example of a stock rising in price shows your claim is wrong.

 

[Toddsterpatriot]

Let's use some averages:

A private sector surplus of roughly 2% of GDP, a government deficit of 5% of GDP, and a current account deficit of 3%. Again, it all nets to ZERO.

Private sector balance (+2) + Government sector balance (-5) + Foreign sector balance (+3) = 0

Yup. Every debt is owned by someone.

And financial assets are still larger than liabilities.

 

[Kimura]

Fine.

Still doesn't make this claim---->"net financial wealth must ultimately equal zero"
true.

It's apparent that the domestic private sector will accrue $20 billion of net financial wealth during the year which consists of $20 billion in government sector liabilities.

You're assuming that all financial wealth is debt.

I'm not assuming anything. These are basic accounting principles. I'll come up with another example at some point.

My example of a stock rising in price shows your claim is wrong.

No...your stock example is a transaction within the private sector. It really doesn't change any of the overall macroaccounting within our sectoral model.

I think I'm done with accounting for today.

 

[Kimura]

Let's use some averages:

A private sector surplus of roughly 2% of GDP, a government deficit of 5% of GDP, and a current account deficit of 3%. Again, it all nets to ZERO.

Private sector balance (+2) + Government sector balance (-5) + Foreign sector balance (+3) = 0

Yup. Every debt is owned by someone.

And financial assets are still larger than liabilities.

FYI, the foreign sector consists of foreign households, firms, and governments. Just so there's no confusion.

People should realize not all sectors can simultaneously run surpluses. And that government deficits are perfectly normal under various economic conditions.

 

[Toddsterpatriot]

I'm not assuming anything. These are basic accounting principles. I'll come up with another example at some point.

My example of a stock rising in price shows your claim is wrong.

No...your stock example is a transaction within the private sector. It really doesn't change any of the overall macroaccounting within our sectoral model.

I think I'm done with accounting for today.

No...your stock example is a transaction within the private sector.

Yes, the increase in my stock value increased the financial assets of the private sector, without decreasing the financial assets of any other sector.

I think I'm done with accounting for today.

Then I think I'm done correcting your accounting errors for today.

 

[Kimura]

My example of a stock rising in price shows your claim is wrong.

No...your stock example is a transaction within the private sector. It really doesn't change any of the overall macroaccounting within our sectoral model.

I think I'm done with accounting for today.

No...your stock example is a transaction within the private sector.

Yes, the increase in my stock value increased the financial assets of the private sector, without decreasing the financial assets of any other sector.

I think I'm done with accounting for today.

Then I think I'm done correcting your accounting errors for today.

Your stocks can payout dividends or you can sell them, correct? Bank accounts are settled and cleared when this occurs. If you sell say, 10k worth of Cisco, one account is debited and another is credited, settlements are made in dollars. Those dollars are non-government assets, but are also liabilities of the government sector.