The Fed’s Taper and Market Fealty

[oldfart]

The tech bubble wasn't caused by "artificial interest rates". Urban legend. Look at the Goldilocks economy. Our trade deficit skyrocketed and there was a public sector surplus.This was a bad idea as far as stock flow consistency. The private sector naturally went into deficit as the public sector was in surplus. Private debt loads increased and housed savings evaporated. This is what caused the bubble.

The circular flow of income accounting identity you're using (S+T+C+M=C+I+G+X) does not say anything about a causal relationship (hence one really good reason it's insufficient as a model for determining policy). An identity statement necessarily does not indicate causality. In a closed economy, saying the private sector went into deficit is identical to saying that the public sector went into surplus. Saying the private sector deficit CAUSED the public sector surplus is not derived or warranted from the sectoral balances identity statement.

What you say is a good reminder. I assure you that Kimura's macro model contains a pretty sophisticated production function along with the traditional demand functions for trade balance, consumption, and investment. He also has a pretty detailed grasp of financial markets (as does Toro). Ask us a question if you think the post is underdeveloped, don't think we confuse national accounting identities with functions.

 

[expat_panama]

...Deficits provide stimulus, stimulus promotes business formation, economic growth, and employment...

That's what the extreme left says, and this is what's been happening:

 

[oldfart]

...Deficits provide stimulus, stimulus promotes business formation, economic growth, and employment...

That's what the extreme left says, and this is what's been happening:

You would be persuasive if you didn't have the causality exactly backward. FRED is ashamed of you.

 

[expat_panama]

...Deficits provide stimulus, stimulus promotes business formation, economic growth, and employment...

That's what the extreme left says, and this is what's been happening:

You would be persuasive if you didn't have the causality exactly backward...

Let's focus. I'm not trying to persuade you of anything here. You're trying to persuade us that deficits cause employment. Everyone here sees that increasing deficits come with increasing unemployment. You mention causality. Before we talk about what made the unemployment, we need to first agree that deficits did not increase employment. We should all understand that there's no reason to think increasing deficits now with lower our unemployment rate.




Am I going to fast here?

 

[oldfart]

Let's focus. I'm not trying to persuade you of anything here. You're trying to persuade us that deficits cause employment. Everyone here sees that increasing deficits come with increasing unemployment. You mention causality. Before we talk about what made the unemployment, we need to first agree that deficits did not increase employment. We should all understand that there's no reason to think increasing deficits now with lower our unemployment rate.

Am I going to fast here?

You are not going too fast; you just are making no sense. This is the third time you have asserted a causal link without any evidence or logical argument. Repeating yourself does not make it so.

My original argument was that deficits (an excess of government spending over government receipts) is stimulus in the sense that it increases aggregate demand. Do you agree?

If the foregoing is correct, the increase in aggregate demand must be manifested in some combination of output expansion or price increase (the whole "supply and demand" thingy). Are you still with me?

Since inflation has been near zero, most of any increase in demand has been reflected in output. Now the reverse is also true. Governmental fiscal austerity (destimulus) has the effect of reducing aggregate demand, resulting in some combination of lower price growth or lower output growth. Does any of this look familiar to you?

As I stated, the mechanism through which deficits work to increase output involve business formation, investment, and job creation.

Now I am aware of a few economic theories that contradict this analysis, but no reputable economist has argued them in the last eighty years and anyone doing so now would be considered bat shit crazy by virtually everyone in business or economics.

So what is your story about how the economy works? Demand created by confidence fairies? Expansionary austerity? Corporate tycoons who create jobs out of civic responsibility?

 

[Avorysuds]

Let's focus. I'm not trying to persuade you of anything here. You're trying to persuade us that deficits cause employment. Everyone here sees that increasing deficits come with increasing unemployment. You mention causality. Before we talk about what made the unemployment, we need to first agree that deficits did not increase employment. We should all understand that there's no reason to think increasing deficits now with lower our unemployment rate.

Am I going to fast here?

You are not going too fast; you just are making no sense. This is the third time you have asserted a causal link without any evidence or logical argument. Repeating yourself does not make it so.

My original argument was that deficits (an excess of government spending over government receipts) is stimulus in the sense that it increases aggregate demand. Do you agree?

If the foregoing is correct, the increase in aggregate demand must be manifested in some combination of output expansion or price increase (the whole "supply and demand" thingy). Are you still with me?

Since inflation has been near zero, most of any increase in demand has been reflected in output. Now the reverse is also true. Governmental fiscal austerity (destimulus) has the effect of reducing aggregate demand, resulting in some combination of lower price growth or lower output growth. Does any of this look familiar to you?

As I stated, the mechanism through which deficits work to increase output involve business formation, investment, and job creation.

Now I am aware of a few economic theories that contradict this analysis, but no reputable economist has argued them in the last eighty years and anyone doing so now would be considered bat shit crazy by virtually everyone in business or economics.

So what is your story about how the economy works? Demand created by confidence fairies? Expansionary austerity? Corporate tycoons who create jobs out of civic responsibility?

You have a rather silly and destructive idea of how the economy should be run. All you are arguing for is malinvestment on a large scale, then claiming that because business grew around stimulus spending that the economy is healthy. The issue is that the main areas where you get growth are purely based on that stimulus spending, and once it's removed you will enter another collapse.... a bubble.

It's really not complicated stuff.

Free markets as in no Government stimulation or pointless regulation (telling a company what they can and can't do based on fears of *what* it might cause.) will give you the answers, always have. In fact it really does not matter if you have free markets or not, the markets are always trying to be free. The "success" illusion that we live under where markets are being propped up then floated is constantly fighting against that invisible hand.

People are aware that Government can't and more importantly won't stimulate a company forever, thus money is invested as long as people know they will get a quick payback. But the reality is these very people are waiting to drop everything and pull all their resources out at the first sign of a contraction of stimulus. That will cause an even bigger collapse when stimulus and the investors all back out.

The markets will then clear, we'll go through a recession/depression and everything will be ok.... But the larger the bubble, the larger the recession/depression. That is why the FED's need to stop. It will only be worse, and the "free markets" don't give fuck about stimulus or regulations, the real markets will always win in the end.

Oh, and lol at inflation not going up.... tell that to the living wage folks lol.

 

[oldfart]

It's really not complicated stuff.

Apparently it is for you.

As I am not going to convince you and you are not capable of convincing me, I see no reason to discuss your market gibberish. It has no connection to how markets actually work. Have a nice life. If you ever wander through Panhandle Florida, look me up and we can split a pizza and a few beers.

 

[expat_panama]

...Deficits provide stimulus, stimulus promotes business formation, economic growth, and employment...

That's what the extreme left says, and this is what's been happening:

You would be persuasive if you didn't have the causality exactly backward...

Let's focus. I'm not trying to persuade you of anything here. You're trying to persuade us that deficits cause employment. Everyone here sees that increasing deficits come with increasing unemployment. You mention causality. Before we talk about what made the unemployment, we need to first agree that deficits did not increase employment. We should all understand that there's no reason to think increasing deficits now with lower our unemployment rate...

...you have asserted a causal link without any evidence...

We're making progress if we can agree that there is no evidence of a causal link.

...My original argument was that deficits (an excess of government spending over government receipts) is stimulus in the sense that it increases aggregate demand... ... deficits work to increase output involve business formation, investment, and job creation...

--and the fact that there is no correlation prevents us from considering the possibility of any causality.

 

[expat_panama]

...inflation has been near zero...

...lol at inflation not going up.... tell that to the living wage folks lol.

Wait a sec, inflation means higher wages and zero inflation means zero wage increases.

 

[Kimura]

The tech bubble wasn't caused by "artificial interest rates". Urban legend. Look at the Goldilocks economy. Our trade deficit skyrocketed and there was a public sector surplus.This was a bad idea as far as stock flow consistency. The private sector naturally went into deficit as the public sector was in surplus. Private debt loads increased and housed savings evaporated. This is what caused the bubble.

The circular flow of income accounting identity you're using (S+T+C+M=C+I+G+X) does not say anything about a causal relationship (hence one really good reason it's insufficient as a model for determining policy). An identity statement necessarily does not indicate causality. In a closed economy, saying the private sector went into deficit is identical to saying that the public sector went into surplus. Saying the private sector deficit CAUSED the public sector surplus is not derived or warranted from the sectoral balances identity statement.

Right, that's a fair and accurate point. I kept it brief since I posted from my tablet. I'll try to clear up any confusion I may have caused.

Let's line up our ducks: (S - I ) = (G - T) + (X - M)

(S) minus private investment, (I) must be equal to the public sector deficit, (G) minus (T) , including net exports (X-M) which gives us the net savings of the foreign sector. In the event we have an external deficit (X-M) < 0 and a surplus (G - T) < 0, naturally, as matter of accounting alone, there will be a private sector deficit. This is why surpluses run by the public sector will result in the private sector running a deficit.

(G - T) = ( S-I ) is just doing some basic math for two sides of one transaction. (G - T) is our our public savings while (S - I) is the identical within the private sector. Both of these entities cannot be in deficit or surplus at the same time.

What I'm saying isn't really that shocking. An increase in the $$$$ supply can only occur with the creation of base $$$$ into the banking system. The only way to inject funds into the monetary base is through the FED.

Let's get back to the Clinton surpluses. We still have some lingering effects. If the government is running a surplus, this means the government is taking in more $$$$ than its spending. This has the opposite effect of a stimulus. The trade deficit also massively increased during the 90s, which resulted in (X-M) dampening GDP during this time period.

The trade deficit was taking away from GDP, and the government sector was talking more $$$$ away from the private sector than it was sending out so to speak.

This resulted in private consumption compensating for the dampening effects from the trade deficit and government. Household savings also tanked during this time period.

If you're interest in a great analysis of this time period, you should check out the awesome stuff Wynne Godley was churning out. Pure genius. The CBO was saying we'd have surpluses up to twenty years down the road. Wynne said they were delusional. The private sector simple cannot operate, year after year, spending more than its total income. It can't operate like United States government by running deficits on an indefinite basis. Eventually something will give, the private sector will reorient itself, an the government will go back to running deficits.

This surplus helped aid the Fannie and Freddie boom of the late 90s. This is where I differ with Toro in my analysis, even though he raises some valid points. During the surplus, the government didn't have to issue a whole lot of debt. But US bonds are a HUGE part of portfolios for every type of large financial institution, and for the average investor that enjoys the safety and risk-free aspects of US Treasuries. During this time, let's not forget, yields on the ten year bond were over five percent. That's not too shabby if you're looking towards some payouts during retirement.

Fannie and Freddie issuance went through the roof when the late 90s. The government slowed down debt issuance and Fannie and Freddie picked up the pace.

The most celebrated achievement of the Clinton era turned out to have been a macroeconomic turd. The dampening of GDP was counterbalanced by massive increases in household debt, decreases in household savings, and the winding up of the Fannie and Freddie debt bonanza which was a huge contributing factor in causing the real estate bubble and subsequent collapse.

Ironically, despite the surplus, interest rates were higher, and it weakened households in a significant way.

 

[oldfart]

(G - T) = ( S-I ) is just doing some basic math for two sides of one transaction. (G - T) is our our public savings while (S - I) is the identical within the private sector. Both of these entities cannot be in deficit or surplus at the same time.

Not trying to nitpick here, but there is a flaw in the national income accounts that makes most analysis of government spending almost worthless. All spending is treated the same, yet functionally it has three components: transfer payments, government consumption, and government spending. Any decent econometric model distinguishes the three, but common discourse, even among macroeconomists who should know better, tend to ignore the distinctions. Do we lump consumption and investment together and call it "private spending"?

Of the three, transfer payments are most likely to be broken out separately. Their main effect is to support private consumption and they do have a redistributional effect. But by definition, they cannot be "wasted" in the sense that government consumption can be; the citizens receiving the payments control whether the income is spent well or not, just like with other private consumption.

But the big problem is the differing effects of government consumption from government investment. How much is the TVA worth? Any valuation given it is a capital stock created by prior investment. How much is the Interstate Highway system worth to the trucking industry? Same reasoning. So it makes a difference whether government spending is for current operations or for investment.

Now the government can waste spending in current operations or in investment, just like the private sector. Good studies of what kinds of spending are more wasteful or inefficient are methodologically impossible because there is no agreed standard to measure against. The ideological wars rage based on anecdotal information, to which there will never be a conclusion. Let's be honest enough to acknowledge this and not clothe our opinions in robes of "fact".

 

[Kimura]

(G - T) = ( S-I ) is just doing some basic math for two sides of one transaction. (G - T) is our our public savings while (S - I) is the identical within the private sector. Both of these entities cannot be in deficit or surplus at the same time.

Not trying to nitpick here, but there is a flaw in the national income accounts that makes most analysis of government spending almost worthless. All spending is treated the same, yet functionally it has three components: transfer payments, government consumption, and government spending. Any decent econometric model distinguishes the three, but common discourse, even among macroeconomists who should know better, tend to ignore the distinctions. Do we lump consumption and investment together and call it "private spending"?

Of the three, transfer payments are most likely to be broken out separately. Their main effect is to support private consumption and they do have a redistributional effect. But by definition, they cannot be "wasted" in the sense that government consumption can be; the citizens receiving the payments control whether the income is spent well or not, just like with other private consumption.

But the big problem is the differing effects of government consumption from government investment. How much is the TVA worth? Any valuation given it is a capital stock created by prior investment. How much is the Interstate Highway system worth to the trucking industry? Same reasoning. So it makes a difference whether government spending is for current operations or for investment.

Now the government can waste spending in current operations or in investment, just like the private sector. Good studies of what kinds of spending are more wasteful or inefficient are methodologically impossible because there is no agreed standard to measure against. The ideological wars rage based on anecdotal information, to which there will never be a conclusion. Let's be honest enough to acknowledge this and not clothe our opinions in robes of "fact".

All valid points which I wouldn't mind discussing further. However, by their very function, deficits add net financial assets to the private sector and surpluses remove financial assets from the private sector. This can be extrapolated from standard national accounting.

 

[expat_panama]

... The trade deficit was taking away from GDP... ...the dampening effects from the trade deficit and government. Household savings also tanked during this time period...

Having one of the GDP formulas with a "exports-imports" doesn't support the goofy idea going around that the so-called 'trade deficit' can dampen production. Reality is that the overall GDP soars with trade deficit increases and the GDP collapses with a trade surplus.

... (G - T) = ( S-I ) is just doing some basic math for two sides of one transaction. (G - T) is our our public savings while (S - I) is the identical within the private sector. Both of these entities cannot be in deficit or surplus at the same time....

It'd be interesting to see how you compare the model to official records. Off hand, public and private debt seem to move independently with recent history showing a contraction of private borrowing along with soaring public debt:

.

 

[Kimura]

... The trade deficit was taking away from GDP... ...the dampening effects from the trade deficit and government. Household savings also tanked during this time period...

Having one of the GDP formulas with a "exports-imports" doesn't support the goofy idea going around that the so-called 'trade deficit' can dampen production. Reality is that the overall GDP soars with trade deficit increases and the GDP collapses with a trade surplus.

fq=Annual%2C+Fiscal+Year,Quarterly%2C+End+of+Period&fam=avg,avg&fgst=lin,lin&transformation=lin,lin&vintage_date=2013-12-26,2013-12-26&revision_date=2013-12-26,2013-12-26[/IMG]
.

Under Clinton, and due to the his economic policies, the trade deficit exploded while the government was in surplus, which resulted in private consumption being the only sector left to compensate by the drag caused by government surplus and the trade deficit. There's nothing goofy about sectoral balances.

Also, here's some FRED data which will demonstrate my point a little better:

 

[expat_panama]

... The trade deficit was taking away from GDP... ...the dampening effects from the trade deficit and government. Household savings also tanked during this time period...

Having one of the GDP formulas with a "exports-imports" doesn't support the goofy idea going around that the so-called 'trade deficit' can dampen production. Reality is that the overall GDP soars with trade deficit increases and the GDP collapses with a trade surplus...

Under Clinton, and due to the his economic policies, the trade deficit exploded while the government was in surplus, which resulted in private consumption being the only sector left to compensate by the drag caused by government surplus and the trade deficit. There's nothing goofy about sectoral balances... ...some FRED data which will demonstrate my point a little better...

Huh. I thought there were two ideas that we were talking about, one that trade deficit's cut GDP, and another that private debt and public debt corrected each other. Were you talking about something else?

 

[Kimura]

Having one of the GDP formulas with a "exports-imports" doesn't support the goofy idea going around that the so-called 'trade deficit' can dampen production. Reality is that the overall GDP soars with trade deficit increases and the GDP collapses with a trade surplus...

Under Clinton, and due to the his economic policies, the trade deficit exploded while the government was in surplus, which resulted in private consumption being the only sector left to compensate by the drag caused by government surplus and the trade deficit. There's nothing goofy about sectoral balances... ...some FRED data which will demonstrate my point a little better...

Huh. I thought there were two ideas that we were talking about, one that trade deficit's cut GDP, and another that private debt and public debt corrected each other. Were you talking about something else?

There's nothing inherently wrong with trade deficits. Imports are a clear benefit (they generate income) and exports are a cost (they cause an outflow of cash).

Sorry about the confusion. This whole tangent started with my disagreement over the FED DIRECTLY causing the housing bubble. There were other factors involved. The combined surplus and trade deficit had a negative effect on the economy at the time. It should be pointed out that a budget deficit operates as an artificial current account surplus.

We had a situation where the trade deficit was actually taking away from GDP, and the federal government was taking more $$$$ from the private sector than it was giving out (surplus). Private consumption compensated for this drag on the economy due to the government surplus and trade deficit. Household debt skyrocketed and household savings evaporated due to Clinton's budget and trade policies. If we would have ran a deficits during this time, this whole situation could have been avoided.

 

[jasonnfree]

Under Clinton, and due to the his economic policies, the trade deficit exploded while the government was in surplus, which resulted in private consumption being the only sector left to compensate by the drag caused by government surplus and the trade deficit. There's nothing goofy about sectoral balances... ...some FRED data which will demonstrate my point a little better...

Huh. I thought there were two ideas that we were talking about, one that trade deficit's cut GDP, and another that private debt and public debt corrected each other. Were you talking about something else?

There's nothing inherently wrong with trade deficits. Imports are a clear benefit (they generate income) and exports are a cost (they cause an outflow of cash).

Sorry about the confusion. This whole tangent started with my disagreement over the FED DIRECTLY causing the housing bubble. There were other factors involved. The combined surplus and trade deficit had a negative effect on the economy at the time. It should be pointed out that a budget deficit operates as an artificial current account surplus.

We had a situation where the trade deficit was actually taking away from GDP, and the federal government was taking more $$$$ from the private sector than it was giving out (surplus). Private consumption compensated for this drag on the economy due to the government surplus and trade deficit. Household debt skyrocketed and household savings evaporated due to Clinton's budget and trade policies. If we would have ran a deficits during this time, this whole situation could have been avoided.

You say:
"Household debt skyrocketed and household savings evaporated due to Clinton's budget and trade policies." Could you go into more detail on this?

 

[oldfart]

(G - T) = ( S-I ) is just doing some basic math for two sides of one transaction. (G - T) is our our public savings while (S - I) is the identical within the private sector. Both of these entities cannot be in deficit or surplus at the same time.

Not trying to nitpick here, but there is a flaw in the national income accounts that makes most analysis of government spending almost worthless. All spending is treated the same, yet functionally it has three components: transfer payments, government consumption, and government spending. Any decent econometric model distinguishes the three, but common discourse, even among macroeconomists who should know better, tend to ignore the distinctions. Do we lump consumption and investment together and call it "private spending"?

Of the three, transfer payments are most likely to be broken out separately. Their main effect is to support private consumption and they do have a redistributional effect. But by definition, they cannot be "wasted" in the sense that government consumption can be; the citizens receiving the payments control whether the income is spent well or not, just like with other private consumption.

But the big problem is the differing effects of government consumption from government investment. How much is the TVA worth? Any valuation given it is a capital stock created by prior investment. How much is the Interstate Highway system worth to the trucking industry? Same reasoning. So it makes a difference whether government spending is for current operations or for investment.

Now the government can waste spending in current operations or in investment, just like the private sector. Good studies of what kinds of spending are more wasteful or inefficient are methodologically impossible because there is no agreed standard to measure against. The ideological wars rage based on anecdotal information, to which there will never be a conclusion. Let's be honest enough to acknowledge this and not clothe our opinions in robes of "fact".

All valid points which I wouldn't mind discussing further. However, by their very function, deficits add net financial assets to the private sector and surpluses remove financial assets from the private sector. This can be extrapolated from standard national accounting.

OK, in a two sector public/private model public sector deficits must equal increases in private sector net financial assets. That's the accounting identity. The actions of the public and private sectors are what cause these results. Neither sector operates with complete control as the other sector's reactions can differ from the expected reactions. Look at any failed government projection!

 

[JimmieD]

The tech bubble wasn't caused by "artificial interest rates". Urban legend. Look at the Goldilocks economy. Our trade deficit skyrocketed and there was a public sector surplus.This was a bad idea as far as stock flow consistency. The private sector naturally went into deficit as the public sector was in surplus. Private debt loads increased and housed savings evaporated. This is what caused the bubble.

The circular flow of income accounting identity you're using (S+T+C+M=C+I+G+X) does not say anything about a causal relationship (hence one really good reason it's insufficient as a model for determining policy). An identity statement necessarily does not indicate causality. In a closed economy, saying the private sector went into deficit is identical to saying that the public sector went into surplus. Saying the private sector deficit CAUSED the public sector surplus is not derived or warranted from the sectoral balances identity statement.

Right, that's a fair and accurate point. I kept it brief since I posted from my tablet. I'll try to clear up any confusion I may have caused.

Let's line up our ducks: (S - I ) = (G - T) + (X - M)

(S) minus private investment, (I) must be equal to the public sector deficit, (G) minus (T) , including net exports (X-M) which gives us the net savings of the foreign sector. In the event we have an external deficit (X-M) < 0 and a surplus (G - T) < 0, naturally, as matter of accounting alone, there will be a private sector deficit. This is why surpluses run by the public sector will result in the private sector running a deficit.

But it's not that surpluses run by the public sector result in prive sector deficits; it's really that public sector surpluses are the same as private sector deficits.

The equation is an identity and should have &#8801; instead of =. So, S+T+C+M &#8801; C+I+G+X. Rerrange to (S - I ) &#8801; (G - T) + (X - M) if you prefer.

If we simplify to a closed economy (S - I ) &#8801; (G - T), then using this equation, a gov't surplus does not precede/cause a private deficit, neither does a private deficit precede/cause a gov't surplus. All we can say is that a gov't surplus is identical to a private deficit and vice versa. We cannot use this equation to establish a logical sequence or causal relationship between the sectors.

I have no problem using national income accounting, but it has some limits. It only accounts for total spending in the economy. It's not an economic model, doesn't speak to welfare/efficiency, and doesn't account for behavior, tastes, preferences, and constraints of economic agents. I think it is useful to point out that public deficits are identical to private surpluses (in a closed economy) because I don't think most people realize this, but I don't think it's of much use beyond this.

And not speaking of you here because I don't think you're doing this, but I think some MMT people on the internet/blogs treat the national income identity as an economic model and end up smuggling some a priori policy ideas into a discussion. If you use it as a model, you end up seeing what you want to see.

What I'm saying isn't really that shocking. An increase in the $$$$ supply can only occur with the creation of base $$$$ into the banking system. The only way to inject funds into the monetary base is through the FED.

Are you saying that the money supply is only bank reserves? The money supply and monetary base are not necessarily the same thing.

 

[oldfart]

The circular flow of income accounting identity you're using (S+T+C+M=C+I+G+X) does not say anything about a causal relationship (hence one really good reason it's insufficient as a model for determining policy). An identity statement necessarily does not indicate causality. In a closed economy, saying the private sector went into deficit is identical to saying that the public sector went into surplus. Saying the private sector deficit CAUSED the public sector surplus is not derived or warranted from the sectoral balances identity statement.

Right, that's a fair and accurate point. I kept it brief since I posted from my tablet. I'll try to clear up any confusion I may have caused.

Let's line up our ducks: (S - I ) = (G - T) + (X - M)

(S) minus private investment, (I) must be equal to the public sector deficit, (G) minus (T) , including net exports (X-M) which gives us the net savings of the foreign sector. In the event we have an external deficit (X-M) < 0 and a surplus (G - T) < 0, naturally, as matter of accounting alone, there will be a private sector deficit. This is why surpluses run by the public sector will result in the private sector running a deficit.

But it's not that surpluses run by the public sector result in prive sector deficits; it's really that public sector surpluses are the same as private sector deficits.

The equation is an identity and should have &#8801; instead of =. So, S+T+C+M &#8801; C+I+G+X. Rerrange to (S - I ) &#8801; (G - T) + (X - M) if you prefer.

If we simplify to a closed economy (S - I ) &#8801; (G - T), then using this equation, a gov't surplus does not precede/cause a private deficit, neither does a private deficit precede/cause a gov't surplus. All we can say is that a gov't surplus is identical to a private deficit and vice versa. We cannot use this equation to establish a logical sequence or causal relationship between the sectors.

I have no problem using national income accounting, but it has some limits. It only accounts for total spending in the economy. It's not an economic model, doesn't speak to welfare/efficiency, and doesn't account for behavior, tastes, preferences, and constraints of economic agents. I think it is useful to point out that public deficits are identical to private surpluses (in a closed economy) because I don't think most people realize this, but I don't think it's of much use beyond this.

And not speaking of you here because I don't think you're doing this, but I think some MMT people on the internet/blogs treat the national income identity as an economic model and end up smuggling some a priori policy ideas into a discussion. If you use it as a model, you end up seeing what you want to see.

What I'm saying isn't really that shocking. An increase in the $$$$ supply can only occur with the creation of base $$$$ into the banking system. The only way to inject funds into the monetary base is through the FED.

Are you saying that the money supply is only bank reserves? The money supply and monetary base are not necessarily the same thing.

I owe you one, Jimmie. This a point I have been trying to make over multiple threads, but you have stated it better. Posters like Kimura are well aware of what is an accounting identity and what is a function; what the difference is between correlation and a causal argument. Lots of posters don't, and it's a pain to have to add a disclaimer about this in every other post.