PeakTrader.com

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PeakTrader:

It seems, the inflation-adjusted price of gasoline averaged around $2.50 a gallon from 1919 to 2011, and was in a downtrend till the late ’90s.

Moreover, gasoline prices were much lower in bull markets (1946-64 and 1982-00) than bear markets (1965-82 and since 2000).

Chart:

http://www.consumerenergyreport.com/wp-content/uploads/2012/02/gas-prices-inflation-adjusted.jpg?00cfb7

Chart of CPI and Inflation-Adjusted Price of Gasoline:

http://www.consumerenergyreport.com/wp-content/uploads/2012/02/Consumer-price-index-gas-prices-inflation.jpg?00cfb7

In one of the strongest periods of economic growth, 1995-00, e.g. when federal deficits turned into surpluses, the inflation-adjusted price of gasoline fell to its lowest level.

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Morganovich:

peak-

federal deficits never turned into surpluses. it’s a persistent myth, but a myth nonetheless.

there was not a single year of surplus under clinton. 2000 was very close, but it was still a deficit.

http://finance.townhall.com/columnists/craigsteiner/2011/08/22/the_clinton_surplus_myth/page/full/

it was just sleight of hand where a rise in intergovernment debt was ignored.

of course, this is using government cash accounting, a system any public company ceo/cfo would be jailed for using.

under gaap, it was much wider (as gaap accounts for new future liabilities incurred).

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PeakTrader:

Morganovich says: “federal deficits never turned into surpluses. it’s a persistent myth, but a myth nonetheless.”

If you collect $200, your wife collects $100, you borrow $100 from your wife, and you both spend $200, you have a $100 surplus, although your debt went up $100.

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Morganovich:

peak-

um, no.

that is, in fact, completely wrong.

you are using weird semantic sleight of hand and some definition of “surplus” that no one else uses.

if two of you take in $300 and spend $400, you have a $100 deficit, not a surplus.

that deficit is bridged by borrowing (or from previous savings)

any time spending exceeds income, you have a deficit.

you cannot have a surplus that runs up debt.

if you were taking in more than you paid out, debt would go down, not up.

the “surpluses” of the late 90′s and 2000 are just accounting fiction.

they look at only one part of debt as opposed to all debt and thus come up with the wrong answer.

deficits funded by previous savings as still deficits.

if you take money saves by social security and give them an IOU, that is debt just like selling a treasury to you would be.

you cannot exclude that from the balance or you get the wrong answer on deficits.

to go back to your example, imagine you and your wife take in $300 and spend $400. you cover the gap by borrowing $150 from your wife’s savings. this leaves you extra money and you use it to pay down your mortgage.

if we look just at your external debt, this looks like a surplus. it looks like debt went down. this is the claim you are making about the 90′s.

but such a claim is patently false. your internal debt went up by $150 vs a $50 decrease in external. you have more debt, not less. that is because you ran a deficit and spent more than you took in.

even if you ran up no internal debt (which was not the case with our government) it would still be a deficit.

it is quite possible to run deficits and pay off debt at the same time IF you have savings.

if you take in $300, and spend $400 by taking $100 out of your $500 savings, no debt was created, but you still ran a deficit.

i think you need to look up what these terms mean.

the comment you made does not make any sense.

the $100 surplus you describe is actually a $100 deficit.

Definition of ‘Budget Deficit’

A financial situation that occurs when an entity has more money going out than coming in. The term “budget deficit” is most commonly used to refer to government spending rather than business or individual spending. When it refers to federal government spending, a budget deficit is also known as the “national debt.” The opposite of a budget deficit is a budget surplus, and when inflows are equal to outflows, the budget is said to be balanced.

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PeakTrader:

Morganovich, if you don’t believe me, maybe you’ll believe the article you posted above:

“The Social Security Administration is legally required to take all its surpluses and buy U.S. Government securities, and the U.S. Government readily sells those securities–which automatically and immediately becomes intragovernmental holdings. The economy was doing well due to the dot-com bubble and people were earning a lot of money and paying a lot into Social Security. Since Social Security had more money coming in than it had to pay in benefits to retired persons, all that extra money was immediately used to buy U.S. Government securities.”

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A budget surplus is when revenue exceeds spending, in that fiscal year.

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Morganovich cites: “…a budget deficit is also known as the “national debt.”

When you figure out the difference between deficit and debt, let me know.

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And, as you can see, federal revenue increased faster than federal spending:

Federal Budgets

Year – Revenue – Spending – Deficit or Surplus

1992 – $1.64 trillion – $2.08 trillion – $437 billion Deficit
1996 – $2.02 trillion – $2.16 trillion – $149 billion Deficit
2000 – $2.63 trillion – $2.33 trillion – $307 billion Surplus

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Morganovich, after you learn the difference between deficit and debt, you can learn the difference between a balance sheet and income statement.

Let’s continue my original statement:

“If you collect $200, your wife collects $100, you borrow $100 from your wife, and you both spend $200, you have a $100 surplus, although your debt went up $100.”

Then, you use that $100 to pay a debt owed to a friend.

So, revenue went up $100, spending is unchanged ($100 surplus), and debt is unchanged.

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Ron:

In that case. I wouild like to borrow $100 from PeakTrader Bamk. I will draw $50 now, and leave the other $50 with you.

Now, since you still owe me $50 and and I owe you $50, we can call it even.

It’s been nice doing business with you. You can bet your ass I’ll be back.

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PeakTrader:

Ron, the way it works is my household collects $300 from you, we spend $150 on you, after $50 of expenses, and the remaining $100 shrinks as a percentage of my income.

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http://www.aei-ideas.org/2012/12/christmas-card-from-the-u-s-oil-market-gas-prices-are-at-the-lowest-since-last-december/#comments

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