Need help, comprehension or something else?

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TheAvenger161173
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28 Jun 2018, 5:21 am

I’ve been trying to read something about economics. My brain doesn’t understand it at all, it’s like I’m confused and can’t grasp what is being said. Doesn’t matter how many times I read it I don’t get it. Im confused, don’t understand what’s being said. I’m trying to understand what it is? This happens a lot when I’m reading, but also in conversations, and I struggle with film plots. Confusion. Not understanding what’s been said. General basic conversations are ok, if someone is describing things, or something technical I don’t get it, I mostly just go along with it that I get it when I don’t. Is the reading issue separate to the other issues? Are they connected? Anyone have any ideas? It’s plagued me all my life. Even things much less complicated I just don’t get. Many thanks. (Here is what I was trying to read) (im not concerned with trying to understand it, and more with why I can’t).

“Countries which issue their own sovereign currency (e,g, US, UK, Japan, Australia - NOT Eurozone) can print. The Bank of England recently printed GBP 375 billion as part of its quantitative easing programme.

The question as to why they don't do this habitually is slightly complex and to some extent political rather than economic.

When a (sovereign currency issuing) government spends, it is explicitly creating new money. Such governments don't have a finite stock of money they can spend from. Instead, they create every unit (dollar, pound, yen, etc.) that they spend simply by marking up the recipients bank accounts and the reserve account which the respective commercial bank holds at the Central Bank. This adds money to the economy.

In order to keep the supply of money stable - so as to avoid inflation - the government has two mechanisms for removing money from the economy. The first one is tax. When the government taxes, the money is removed from the economy. It doesn't go into a giant pot which the government can then spend. It doesn't need to. The government creates the currency! The other mechanism is what is called 'borrowing'. This involves the government swapping some of its non-interest bearing currency for an interest-bearing bond. So when someone buys government bonds they submit their highly liquid cash for a bond which pays them interest later. This removes the cash from circulation. (It can be though of as like shifting from a current/checking account to a savings account). So the government typically taxes and then if there is still a spending deficit, they neutralise the money effect of that deficit (i.e. the addition of money to the economy) by removing some money via 'borrowing' - exchanging money for bonds. Note: they are not taxing and borrowing to fund the spending, but to neutralise the effect on the quantity of money in circulation.

So - all other things being equal - borrowing is required to avoid inflation on spending deficits. Or, alternatively - all other things being equal - simple printing would cause inflation.

It is worth pointing out though that there are many cases when all other things are not equal, and therefore inflation would not necessarily occur when the money supply increases. As the economy grows, for example, it needs more money otherwise deflation would occur. So, when economic growth is anticipated, some amount of direct printing would be acceptable in terms of not causing any inflation in the economy (and the empirical data shows that, over time, deficits vastly out-weight surpluses as an economy grows). During a recession, when there are idle resources, a government spending deficit (an increase in the money in circulation) can be expected to stimulate private spending and cause economic growth and hence also no inflation. In this scenario it would be perfectly acceptable (and indeed desirable) for the government to not bother neutralising the deficit with borrowing and simply allow the spending deficit (which would be printing) to stimulate the economy. Other examples are where the balance of trade or savings rate change, both of which affect the quantity of money in circulation in the economy.

The ability of a government to print money is determined by the balance of these factors, not any hard funding constraint as is usually portrayed. But governments don't operate this way. Instead they insist on balancing budgets, which is a political choice rather than an economic imperative. So we end up with a daft situation where the government spends (adds money), and then reflexively neutralises the money effect of the spending by issuing bonds (removing money), then the governments own central bank buys the bonds (i.e. swaps for cash) to accommodate economic growth (adds money) or hit the target interest rate (add or remove money). The result is that the government debt ends up being owed to the central bank, when the same result could have been achieved by allowing the appropriate amount of printing instead of issuing debt.

There are more complications. Government debt is used by the central bank to control the interest rate, and is also a comparatively-safe source of investments for, say, pension funds. So government debt is not just about balancing the money in circulation but provides other benefits to the society and options to the administration for managing the economy. Governments even issue debt when they do not have a spending deficit!

So there is nothing wrong, in principle, with printing, as long as it is done at the appropriate quantity in light of the economic conditions at the time (growth rate, savings rate etc.). Most politicians think we have to have balanced books though, which results in counter-productive measures such as austerity during the greatest recession in living memory.

If the government prints, or continues to print, when the economy as at capacity, i.e. has no more scope to grow with additional money, then inflation is caused. So the capacity of the economy to produce goods and services represents the limit at which a government could, in principle, print.

None of this applies to governments which do not control their own currency (e.g. Eurozone).”
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yellowtamarin
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28 Jun 2018, 6:25 am

Do you find you want to fall asleep while you try to read and comprehend it?

I'm just wondering how similar the issue is to my own comprehension issues. I'm seeing similarities but I'm not sure...



TheAvenger161173
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28 Jun 2018, 6:36 am

yellowtamarin wrote:
Do you find you want to fall asleep while you try to read and comprehend it?

I'm just wondering how similar the issue is to my own comprehension issues. I'm seeing similarities but I'm not sure...

No, but I can feel fatigued when reading. I’ve put that down to the white background, I have similar issues when painting on white canvas.(I’m an artist). Do you have similar issues?



yellowtamarin
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28 Jun 2018, 6:53 am

TheAvenger161173 wrote:
yellowtamarin wrote:
Do you find you want to fall asleep while you try to read and comprehend it?

I'm just wondering how similar the issue is to my own comprehension issues. I'm seeing similarities but I'm not sure...

No, but I can feel fatigued when reading. I’ve put that down to the white background, I have similar issues when painting on white canvas.(I’m an artist). Do you have similar issues?

Oh, that's interesting! I think it's a different issue though. I have hypersomnia and when I'm trying to concentrate on things that my brain struggles to process, it wants to go to sleep. It can include reading articles (like your example) or listening to information, say, in a staff meeting. So it's not a visual thing but a comprehension/processing thing.

I too can struggle with film plots or conversation. Those types of movies with conspiracies or lots of tactical/strategic conversations tend to be the worst. I hear the words but I can't process what it means. Like that economic text - I can read the words just fine but I couldn't now tell you what it said, or meant.

Hopefully someone else can help with what the problem really is.



TheAvenger161173
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28 Jun 2018, 7:16 am

yellowtamarin wrote:
TheAvenger161173 wrote:
yellowtamarin wrote:
Do you find you want to fall asleep while you try to read and comprehend it?

I'm just wondering how similar the issue is to my own comprehension issues. I'm seeing similarities but I'm not sure...

No, but I can feel fatigued when reading. I’ve put that down to the white background, I have similar issues when painting on white canvas.(I’m an artist). Do you have similar issues?

Oh, that's interesting! I think it's a different issue though. I have hypersomnia and when I'm trying to concentrate on things that my brain struggles to process, it wants to go to sleep. It can include reading articles (like your example) or listening to information, say, in a staff meeting. So it's not a visual thing but a comprehension/processing thing.

I too can struggle with film plots or conversation. Those types of movies with conspiracies or lots of tactical/strategic conversations tend to be the worst. I hear the words but I can't process what it means. Like that economic text - I can read the words just fine but I couldn't now tell you what it said, or meant.

Hopefully someone else can help with what the problem really is.
“I hear the words but can’t process what I means” similar to myself. Happens a lot to me. Same with day to day conversations. Similar for sure. I’m certain I don’t have hypersomnia though.



BeaArthur
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28 Jun 2018, 4:45 pm

With regard to the economics example, I think the problem may be that you don't have a sufficient grasp of the component concepts for the example to make sense. No amount of re-reading will make it intelligible if you don't grasp the components.

Does that make sense?


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TheAvenger161173
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29 Jun 2018, 4:29 am

BeaArthur wrote:
With regard to the economics example, I think the problem may be that you don't have a sufficient grasp of the component concepts for the example to make sense. No amount of re-reading will make it intelligible if you don't grasp the components.

Does that make sense?

That’s possible. Although It happens with things I’m also very familiar with, and I’m knowledgable in.