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The Weekend Quiz – December 2-3, 2017

Welcome to The Weekend Quiz. The quiz tests whether you have been paying attention or not to the blogs I post. See how you go with the following questions. Your results are only known to you and no records are retained.

1. Governments concerned with their public debt ratio should encourage growth because the debt ratio falls once economic growth resumes.

2. A nation can run a current account deficit accompanied by a government sector surplus of equal proportion to GDP, but national income changes will ensure that the private domestic sector is spending more than it earns and accumulating debt.

3. Government deficit spending would have a greater expansionary impact on aggregate demand if the central bank bought the public debt to match the deficit instead of a situation where the government matches it deficit by issuing debt to the private sector.

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    This Post Has 5 Comments
    1. I’m looking forward to the answer for question 3.

      As Warren and Mike Norman has pointed out for years now that the interest income channels are a fiscal stimulas. As there is always more savers than borrowers.

      So when central banks raise interest rates they are infact adding wealth to the non government sector. Which you can see clearly in the economic data since the FED has been in rate hike mode.

      $ has fell from 104 to 92

      Year over year increases in inflation is the highest in 5 years. Going from just under 1% to over 2.5% since the FED started hiking.

      Gold an inflation edge going from 1025 to over 1350 since the FED started hiking.

      As the data shows increasing interest rates does not fight inflation but it helps to cause it as prices rise across the economy and once the FED increases interest rates again on the 13th December the trends will continue.

      $ continues to go a lot lower

      inflation continues to rise slowly

      Gold moves lot higher

      Which is the exact opposite to what experts say on Bloomberg and Rueters and the mainstream media.

      A study of Russia data only reinforces the main points. They’ve been cutting interest rates like crazy. Taking interest income out of the economy and cutting prices across the economy by the price setter.

      They’ve had one of the strongest currencies

      inflation has fell 3% from 11% to nearly 8%.

      Mexico’s data also support the main points.

      They’ve increased their interest rate by 4% from 3% to 7%

      Their inflation rate has jumped from 2% to nearly 7%

      The Peso has weakened big time.

      All the data shows increasing interest rates does not make a currency stronger and does not fight inflation. The opposite is true. Which is just more lies and deceit from the mainstream.

    2. My understanding for #2 is that loans create deposits. If there is a current account deficit, the only way for the government to run a surplus is by placing the private domestic sector in debt.

      Banks lend credit (creating it out of nothing) and find reserves after the fact. This places the private domestic sector further into debt and they need continuing rising incomes to be able to service their debt obligations.

      Banks can always find available funds using the central bank as banker of last resort. Usually they’ll find their reserves from foreign central banks that have accounts with the countries central bank. The foreign central banks have accumulated financial assets in local currency as a result of that countries current account deficit.

      Where I am confused is to why local private banks go offshore and have debt denominated in foreign currencies. My understanding is Australian Banks have large foreign currency denominated debt and I don’t understand why.

    3. Xenji I have wondered that two. In nz I believe 20% is in hedged foreign currency. Why? So surely it has to be converted to nz dollars to be useful as reserves to settle increased loans? I don’t get the procedure. This is a gap in my understanding. Perhaps a finance person could enlighten us?

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