An alternative to popular faith
Popular faith holds that the federal debt is a ticking “time bomb,” ready to explode into inflation and high interest rates, and destroy our economy. Here are a few references, beginning 70 years ago. Note that the language remains the same, down through the years — repeated predictions of a disaster that never seems to come.
Even with the end of the gold standard in 1971, arguably the most significant economic event since the Great Depression, the debt-hawk language never changes — as though 1971 were a non-event.
Sept 26, 1940, New York Times: Deficit Financing is Hit by Hanes: ” . . . unless an end is put to deficit financing, to profligate spending and to indifference as to the nature and extent of governmental borrowing, the nation will surely take the road to dictatorship, Robert M. Hanes, president of the American Bankers Association asserted today. He said, “insolvency is the time-bomb which can eventually destroy the American system . . . the Federal debt . . . threatens the solvency of the entire economy.”
Feb 11, 1960, New York Times: Mueller Assails Rise in Spending: The enormous cost of various Federal programs is a time bomb, threatening the country’s fiscal future, Secretary of Commerce, Frederick H. Mueller warned here today “. . . the accrued liability is a ticking time bomb. Some day someone will have to pay.”
Oct 4, 1983 Evening Independent – The United States and the developed world face a “ticking time bomb” because of the huge foreign debt involving loans to Third World nations
Oct 26, 1983, David Ibata: “ . . . home-building officials called for a commission to propose ways to trim the $200 billion federal deficit. The deficit is a ‘ticking time bomb‘ that probably will explode in the third quarter of 1984,’ said Fred Napolitano, former president of the National Association of Home Builders.
Feb 21, 1984, James Warren: “‘We now hear from them (the Reagan administration) that deficits don’t cause high interest rates and inflation,’ AFL-CIO President Lane Kirkland said. ‘If that’s the case, we’ve suddenly discovered the horn of plenty and should stop worrying and keep borrowing and spending. But I don’t believe it. It’s a time bomb ticking away.”
January 12, 1985, Lexington Herald-Leader (KY):The federal deficit is “a ticking time bomb, and it’s about to blow up,” U.S. Sen. Mitch McConnell, a Louisville Republican, said yesterday.
Feb 17, 1985, Los Angeles Times: We labeled the deficit a `ticking time bomb‘ that threatens to permanently undermine the strength and vitality of the American economy.”
Jan 5, 1987, Richmond Times – Dispatch – Richmond, VA: 100TH CONGRESS FACING U.S. DEFICIT ‘TIME BOMB‘
November 28, 1987, The Dallas Morning News: THE TICKING TIME BOMB OF LONG-TERM HEALTH CARE COSTS A fiscal time bomb is slowly ticking that, if not defused, could explode into a financial crisis within the next few years for the federal government and our nation’s elderly. The ticking bomb is the growing cost of long-term care.
October 23, 1989, FORTUNE Magazine: A TIME BOMB FOR U.S. TAXPAYERS The government guarantees millions of mortgages, bonds, deposits, and student loans. These liabilities, now twice the national debt, are growing fast.
May 1, 1992, The Pantagraph – Bloomington, Illinois: I have seen where politicians in Washington have expressed little or no concern about this ticking time bomb they have helped to create, that being the enormous federal budget deficit, approaching $4 trillion and growing now at an annual rate of $400 billion per year.
October 28, 1992: Ross Perot: “Our great nation is sitting right on top of a ticking time bomb. We have a national debt of $4 trillion. Seventy-five percent of this debt is due and payable in the next five years. This is a bomb that’s set to go off and devastate our economy and destroy thousands of jobs.
Dec 3, 1995, Kansas City Star: Deficit is sapping America’s strength. Concerned citizens. . . regard the national debt as a ticking time bomb poised to explode with devastating consequences at some future date.
April 14, 2003: Porter Stansberry, for the Daily Reckoning: The baby boomers are heading into retirement with no savings and no productive companies to support them in old age. Generation debt is a ticking time bomb…with about ten years left on the clock.
October 1, 2004, Bradenton Herald: A NATION AT RISK: TWIN DEFICIT A TICKING TIME BOMB: Lawmakers approved Bush’s request without cutting federal spending by a penny, thereby fattening the country’s projected record deficit of $422 billion by another $145 billion next year.
May 31, 2005, Providence Journal, Defusing the Medicare time bomb, Some lawmakers see the Medicare drug benefit for what it is: a ticking time bomb, set to wreak havoc on the budget and shoot future tax rates sky-high.
April 5, 2006, NewsMax.com, “We have to worry about the deficit . . . when we combine it with the trade deficit we have a real ticking time bomb in our economy,” said Mrs. Clinton.
Dec 3, 2007, USA Today: US debt: $30,000 per American. WASHINGTON (AP): Like a ticking time bomb, the national debt is an explosion waiting to happen.
*September 24, 2010, Email from the Reason Alert: ” . . . the time bomb that’s ticking under the federal budget like a Guy Fawkes’ powder keg.”
*July 7, 2011, Washington Post, Lori Montgomery: ” . . . defuse the biggest budgetary time bombs that are set to explode as the cost of health care rises and the nation’s population ages.
And on and on and on. You get the idea. That time bomb has been on the verge of explosion at least since 1940. Even today, the media, the politicians and sensationalist economists refer to the debt as a ticking time bomb. Please look at the following graph and see if you can find any relationship between deficit spending vs inflation and/or interest rates.
This graph shows there is no predictable relationship between federal deficits vs. inflation and or interest rates.
If the debt is a time bomb, it surely has the slowest fuse in history. The pundits have been wrong, wrong, wrong, all these years. We should understand federal deficits, even large federal deficits, have not caused inflation or any other negative economic effect, and the debt is not a ticking time bomb? It’s an economic necessity. Let us turn away from faith and start to rely on facts.
The faith healers* are killing our economy by restricting money growth. See: The damage done by deficit cuts.
Rodger Malcolm Mitchell
*Faith is belief without evidence. Science is belief from evidence.
31 thoughts on “–Federal Debt: A “ticking time bomb””
Dear Mr. Mitchell:
I’ve read your book twice and found it extremely interesting. I have always been financially conservative, and your theory would normally be anathema to me; but your theory makes sense. Otherwise, how can country like Japan run a debt to GDP ratio of 200% while maintaing a strong Yen and while experiencing low or negative inflation?
There is only one thing about your theory I haven’t grasped yet. If a country can print all the money it needs, theoretically, it could give everyone an income thereby eliminating the the requirement for work. I read your response to a similar question stating that then nothing would get done or produced. It seems to me that there must be something more to this situation. The following leads to a question on which I would appreciate your comments:
(Please bear with me as I know this will sound sophomoric). Primal humans supported themselves through their efforts as hunter gatherers(work) which was a daily struggle. With the development of agriculture, humans greatly improved their existance since it was possible to store food for later use. Still effort or work was the main ingrediant. Barter then came into use whereby one would trade say a bushel of grain for maybe hides or cloth. Since barter was difficult and inefficent, money came on the scene as a portable medium of exchange. A person’s work, effort or product could now be assigned a value and then that value could be exchanged for a certain amount of money of the same or approximate value. That money could then be transported to other areas and used to acquire goods or services at a later time. As humans became more sophisticated, investments were created whereby work was not necessary. Risk substitued for work.
My question is this: Isn’t the value of money the result of the work, products produced, services, risk etc. of the person or entity exchanging those things for money? In other words, If the government were to print money and give it to people for no work, effort or risk, wouldn’t the money then also be worthless?
I’d appreciate your insight on this and thanks.
Thank you for your comments. To answer your question, if the government were to print money and give it just to me for no work, effort or risk, money would still have value. True? So your question probably means “. . . give it to everyone . . .”
The value of money, as with all commodities, is determined not by work, but by the classic arbiters of value: Supply and demand. Yes, infinite supply would reduce the value infinitely. But are we really talking about infinite supply? Please remember that I do not suggest the government give unlimited amounts of money to everyone. Eliminating federal taxes does not produce infinite money.
Demand is dictated by risk and reward.
So we narrow down to the question, “What is the reward for owning money?” I suggest there are two rewards: Interest and utility. When interest rates are high, you might rather have a CD (money) than a share of stock (non-money). The reverse is true when interest rates are low.
What is utility? The ability to exchange it for things of value, and the ability to pay taxes with it. (In this case, I’m referring to state and local taxes, which I do not suggest be eliminated).
Let’s say the government gave everyone in the country a certain amount of money – make it a nice large $50,000. Would that make money completely lose its value? Would everyone be satisfied with $50,000 and want no more? Probably not. People still would crave more money.
But adding significant money to the economy could cause loss of value (inflation), unless the reward (interest) were increased proportionately, which is why the Fed raises rates when it senses oncoming inflation.
There is a branch of economics called Chartalism which holds that money always will have value so long as there are taxes. I suspect this is true, though the taxes need not be federal, and there are other rewards too for owning money.
Please let me know whether this responds to your question.
Rodger Malcolm Mitchell
Thank you for getting back to me so quickly. I need to think about your reply since I am not sufficiently literate in economics to understand your comments without re-reading parts of your book. If I still have questions, I’ll get back to you.
Thank you again.
It appears you are suggesting that the gov’t printing of paper currency is being inhibited by opponents of deficit spending. Isn’t the gov’t printing of dollars restricted by the velocity? In other words, isn’t the deflation in debt restricting the printing? After all, the printing presses of the Treasury are trying to stimulate in order to prevent further deflation in debt caused by the debt bubble bursting. Am I missing something here?
Printing of paper currency is only a small part of what misleadingly is called “debt.” I have no idea what you mean by “gov’t printing of dollars restricted by velocity” and “deflation in debt restricting the printing” and “deflation in debt.” Sounds like gobbledegook.
In any event, nothing restricts the government’s ability to create money, which was the reason we went off the gold standard. As you have seen, last year and this, the government can create trillions of dollars at will.
Rodger Malcolm Mitchell
Isn’t the actual creation of money a combination of the various computational recordations of numbers representing that money in our country’s and others banking systems and the speed with which that money flows through the system and multiplies through lending? Or, in other words, velocity of money? If there is no demand for said money, or requests for increases or initiations of debt, doesn’t that restrict the actual creation of usable money? Isn’t this economic crisis, or recession, a result of the various decreases in the total business and personal debt? Or, in other words the deflation (reduction thereof) of debt? Isn’t our government attempting to create money, through additional debt to replace the loss of debt held by individuals and particularly the mortgage, banking and insurance industries? Wasn’t the entire banking industry in a near panic because the debt bubble was bursting from bad mortgages, derivatives and other debt constrictions? Lastly, isn’t the government’s ability to create money restricted by the continued “full faith and credit” in the government? If our monetary system of dollars continues to loose credibility throughout the world, and the world governments succeed in removing the dollar as the worlds reserve currency, what then?
Mike, sorry but this old brain isn’t up to your formalistic writing style. (“. . . various computational recordations . . . ” Whew!)
Anyway, let me answer one question that seems to be on point: “Isn’t the government’s ability to create money restricted by the continued “full faith and credit” in the government?”
Full faith and credit does not restrict the government’s ability to create money, though it affects the risk of owning money. The government can create money at will; I think you are not talking about the ability to create it, but rather the value of the money it creates.
The value of money is determined by supply and demand. The demand is determined by risk (that’s your full faith and credit) and reward.
The reward is determined by utility (the ability to exchange it for goods and services and paying taxes) and interest. Everyone in America is required to accept U.S. money, by law and to pay taxes.
The reward, which can be manipulated, is interest. The higher the interest, the more you will invest in money (bank accounts, money markets, etc.) The lower the interest, the more you will invest in non-money (stocks, real estate).
In short, since 1971 (the end of the gold standard), nothing limits the government’s money-creating ability. It can credit your bank account any time it wishes — and it doesn’t need or use tax money to do so. When you send taxes to the federal government, that money is destroyed and becomes a credit on a balance sheet.
Your last sentence ended with “. . . what then?” Answer: Then, we won’t be the world’s reserve currency, which would put us even with every other nation in the world. So??
Rodger Malcolm Mitchell
To continue your final thought in the preceeding. So, then our government looses the ability to freely float those T-bills, treasury notes or bonds to the various sovereign nations that currently buy them. Your premise that the government has the ability to print as much money as it wishes, may be true, but flies in the face of every economic principle I have ever learned in college or life. Yes, every government in existance has the ability to print ad infinitum. So what?? Then we have currency decreasing in value because of an increase in quantity. Another basic rule of economics, or supply and demand. To propose that debt never has to be repaid shows a total and complete lack of responsibility and also flies in the face of “full faith and credit”. When one realizes that a debt is not going to be or can’t be repaid, that is the beginning stage of bankruptcy or in a government’s situation, default. Do you propose that our government run it’s finances as other governments in the past in which they defaulted on debt obligations? I guess I would then classify your way of doing things as the epitome of irresponsibility.
Yes, since 1971 the government has had the power to create money without limit. However, I do not suggest the government should create unlimited amounts of money. You can see what I do suggest at https://rodgermmitchell.wordpress.com/2009/09/07/introduction/
And nowhere have I proposed that federal debt should not be repaid.
Your words, 10/30/2009
“As for grandchildren, I am a grandchild of the adults who saw the gigantic deficits of WWII and of President Reagan. Yet, because tax rates have gone down, I never have paid one penny toward those monster deficits. Similarly, if tax rates continue to stay level or decline, as they should, my grandchildren will not pay a penny toward today’s deficits.”
As deficits add to accumulated debt, I would believe this is what you say you have not proposed.
Michael, I see your confusion. The federal government never, as you said, “defaulted on debt obligations.” However, taxes do not support its servicing of debt. The government creates money ad hoc.
The problem is semantic. The so-called “debt,” more rightly should be called “money created.” Would it make you feel more comfortable to say the federal government has created 12 trillion dollars, and stop thinking about a $12 trillion “debt.”?
I can see I am making little, if any, headway in this discussion. My original question concerned your premise that increasing debt has no significant impact on the economy and that, in your words, “The faith healers* are killing our economy by restricting money growth.” You also say, “Let us turn away from faith and start to rely on facts.” Let me try another avenue to the same destination. Fact: our dollar has decreased in purchasing power 81% since 1971 when the dollar was removed from the gold standard. Another word for a decrease in purchasing power is inflation. What actually is inflation? It is an increase in the number of dollars available for the quantity of goods available. An increase in the price of something without a proportional increase in money to pay for it does not work. And, an increase in the amount of money available without a proportional increase in the price of goods available for that money, will never happen. Basic economics. Fact: there is now broad agreement among economists that in the long run, the inflation rate is essentially dependent on the growth rate of money supply. This is in spite of the Keynesian economic theory that money supply has little or no effect on prices. It is absolutely ludicrous to even imagine that if you increase money supply there will be no long term effect on prices. Fact: Money supply (M3) in 1971 was appx. $500 billion. Debt=$400 billion. 1980-M3=$1.7 trillion. Debt= $900 billion. 1990- M3=$4.7 trillion. Debt= $3.2 trillion 2000- M3=$6.2 trillion. Debt= $5.6 trillion 2009- M3=appx.$13 trillion Debt=appx $12.8 trillion
As can be seen by the preceeding facts, debt, money supply and inflation run hand in hand. These are facts. Now, my original question involved the increase of money supply being inhibited by the reduction in outstanding personal and business debt. (The deflation[decreasing] of debt). When a proportionate amount of money is created and a like amount of debt eliminated, there is no money growth. They offset. Furthermore, when the Fed pursues quantitative easing, which they are doing hand over fist, the increase in money supply is effectively negated by placing the money in reserve. Why do this? Because no one is borrowing. Other than our government that is. Banks aren’t lending. The economy is in recession. (Depression??) The easiest way for the government to expand the money supply is through bank lending. When a bank receives a $billion from the FED and lends it out at a margin of 10% it effectively multiplies that $billion 10 fold. (The velocity of money – how fast it multiplies through the system) When the money stays in reserve, NOTHING. Your printing of money theory at the present time is dead in the water due to the deflationary pressures of the credit markets. Thanks again for your time. Mike
You said, “. . . your premise that increasing debt has no significant impact on the economy . . .”
Never said that. I believe increasing debt is necessary for a growing economy.
You said, “. . . [inflation] is an increase in the number of dollars available for the quantity of goods available . . .”
Not really. Inflation is a decrease in the value of money compared with the value of goods and services. Money is a commodity. The value of a commodity is based on supply vs demand.
If you increase the supply and increase the demand proportionately, there will be no inflation.
Demand is based on risk vs reward. Risk is inflation or bankruptcy, leaving the key to preventing inflation: increasing reward. What is the reward for owning money? Utility and interest.
Utility means you can trade it for goods, services and tax payments. When interest rates are high, there is more demand for money assets, such as savings accounts and money market accounts. When interest rates are low, there is more demand for non-money assets, such as stocks and real estate. Interest regulates demand.
You said, “. . . in the long run, the inflation rate is essentially dependent on the growth rate of money supply.”
That looks only at the supply side of the equation, rather than considering the demand side, too. I’ve posted a graph for you at http://rodgermitchell.com/InflationvsM2-50-09.png. See if you can see any causal relationship between money supply and inflation.
You are correct however, that debt and money run hand in hand simply because all money is debt.
You said, “When a proportionate amount of money is created and a like amount of debt eliminated, there is no money growth. True. Money is debt.
You said, “The easiest way for the government to expand the money supply is through bank lending
No, the easiest way is through deficit spending. The government has minimal control over bank lending, but has absolute control over deficit spending.
You said, “Your printing of money theory at the present time is dead in the water due to the deflationary pressures of the credit markets.
“Printing money” (aka deficit spending)adds money to the economy, thereby easing all deflationary pressures. In addition to giving money to banks and praying they lend it, the government should have dramatically increased deficit spending, well beyond it’s current level. It’s what I recommended two years ago. Had they done that, there would be no recession today.
Mike, is it worth 1/2 hour of your time to learn something new? If so, go to http://www.moslereconomics.com/2009/12/10/7-deadly-innocent-frauds/ “Update: 7 Deadly Innocent Frauds” You will find it interesting, enlightening and in plain English.
Rodger Malcolm Mitchell
After a few hours of setting up an old computer capable of opening a document from Word 97, my two vista comps would not load the doc due to macros or some bit of rubbish, I was able to read the first few pages of Mr. Mosler’s 7 deadly frauds. I will complete the dribble even though I find so many flaws in the first 12 pages the simplistic views are beginning to boggle my mind how someone with a reasonable bit of intelligence could buy into this crap. Mr. Mosler totally ignores the fact that our monetary system continued on the gold standard until 1971 and appears to presume that dollars originated from the government with no basis of value whatsoever for their creation. As his example of family coupons indicates. Perhaps further along in his writings this will be clarified. Of course some of the logic is appropriate, however, the basic explaination appears to presume no need for modern accounting principles, the GAO, or products or services necessary for the government to just make deposits to any and all accounts it deems necessary for the ongoing purposes of making everyone happy. I will withhold any further opinions until I read further. However, I do feel a sense of total disregard for anyone who would propose taxation as an adjustment to spending power is the true cause of inflation, unemployment & recessions. Now that is truly out there!
You said, “Mr. Mosler totally ignores the fact that our monetary system continued on the gold standard until 1971 and appears to presume that dollars originated from the government with no basis of value whatsoever for their creation.”
The world changed dramatically in 1971. Unfortunately, most economists and virtually all of the media, the politicians and the debt-fearing public, do not understand that. They continue to use gold standard words and logic. Debt hawks remind me of religious extremists, who refuse to acknowledge today’s world.
Mr. Mosler’s example of family coupons refers to the situation today, when dollars created by the government are backed only by full faith and credit. Thus, they cost the government nothing to create, and can be produced in unlimited quantities, just as the family coupons cost the family nothing and could be produced in unlimited quantities.
You mention “so many flaws in the first 12 pages.” It would be instructive if you would list those flaws. Perhaps we both shall learn.
I did not find anything that presumes no need for modern accounting principles. Could you quote the appropriate passage(s)? And yes, the government has the power to credit your bank account with any amount. This power became unlimited in 1971.
By the way, there is an old saying: “The man who shakes his head when he is served soup, always will find hairs in the soup.”
Rodger Malcolm Mitchell
Oh, Michael, I neglected to ask: Where did Mr. Mosler “propose taxation as an adjustment to spending power is the true cause of inflation, unemployment & recessions.” I couldn’t find the passage.
It is true that taxation removes money from the economy. It also is true that a growing economy requires a growing supply of money. Therefore, reduces economic growth and employment and can lead to recessions. If you would like the data on that, I’d be glad to supply them.
But nowhere do I see Mr. Mosler saying that taxation causes inflation. In fact, he proposes taxation as a cure for inflation. (I disagree with him, and we have had numerous discussions of that point.)
Rodger Malcolm Mitchell
Answer to your above question, “where did Mr. Mosler propose taxation as an adjustment to spending power is the true cause of inflation, unemployment & recessions”.
See page 8 top: “Answer: . . . . Taxes aren’t about getting money to spend, they are about regulating our spending power to make sure we don’t have too much and cause inflation, or too little which causes unemployment and recessions”
Page 4 “And all they did was change a number in your bank account. The gov’t didn’t ‘get’ anything to give to someone else.” Not true. The gov’t got a reverse entry in their acct. They now have the electronic funds you gave them. Simple accounting. There is no debit without a credit.
Page 5 Deals with a soc. sec. check for $2000. The premise being there is only an entry to spread sheets and no money to back the entry. If he is speaking only in regard to paper money, this is true. However, to the layman who does not understand accounting principles, the inference is there is nothing backing the $2000 at all. There has to be a credit entry to the gov’t’s spreadsheet, whether it be taxes received or treasury securities issued, in order for the number to be there. Again, simple accounting procedures and principles.
Page 6 “There is no such thing as having to ‘get’ taxes (or borrow) to make a spreadsheet entry that we call ‘Government spending’. Computer data doesn’t come from anywhere. Everyone knows that!” I think someone needs to tell all those people working at the Government Accounting Office that they are making all those entries for nothing. Because Mr. Mosler says so. My gosh, can it get any simpler than that???
I could go on and on with basic untruths or incomplete truths in the narrative. However, the fact is until accounting procedures change, and economic principles are proven to be incorrect, Mr. Mosler is blowing smoke. I do not argue the fact that gov’t can issue money until our currency becomes like Zimbabwe’s. Whether that money is actually paper or an acctg’ entry is insignificant. The fact remains that to protect the “full faith and credit” behind the money, basic responsibilities MUST be met. To spend ad infinitum, as you and Mr Mosler propose, is tantamount to putting the gov’t of the USA in a class with those that gather together as many credit cards as they can, charge every card to the limit and then declare bankruptcy. Irresponsibility is not the answer. That is one of the main problems with the world we live in today. The majority of the population refuses to accept responsibility for their own actions and well being and wants the government to do everything for them. You and Mr. Mosler are proposing our government do the same thing. Are you truly that irresponsible?
You said, “To spend ad infinitum, as you and Mr Mosler propose, is tantamount to putting the gov’t of the USA in a class with those that gather together as many credit cards as they can, charge every card to the limit and then declare bankruptcy.
You don’t seem to understand the fundamental difference between the federal government and you. It cannot go bankrupt. You can. Do you know why? Until you do, you cannot understand economics.
Suggestion: Re-read the 1st four paragraphs of the original “time bomb” post. The debt-hawks have been saying the same thing, even with the identical words, for at least 70 years. After 70 years of telling the world the sky is falling, at least they should re-examine their beliefs.
If, for 70 years, a leader kept telling you, year after year, the world was about to end, at what point would you question his beliefs? Ever?
Mr. Mosler’s (and my) point is: The government can make unlimited credit and debit entries, all backed only by full faith and credit. Nothing tangible. No taxes. No gold. Just entries backed by full faint and credit. It doesn’t even need to borrow. It simply can make the entries and reverse entries at will. It has and uses that power every day. That is the reason we went off the gold standard.
What you call “untruths” are your own hasty misreading. You quoted Mr. Mosler, “Taxes aren’t about getting money to spend; they are about regulating our spending power to make sure we don’t have too much, and cause inflation, or too little which causes unemployment and recessions.”
This says taxes remove money from the economy,[true?] which reduces spending power [true?]. He’s saying, too much spending power can cause inflation and too little can cause unemployment and recessions. [true?]
Rather than repeatedly mischaracterizing, then blindly leaping to find fault, read. You can learn that way.
Rodger Malcolm Mitchell
A characteristic that is truly amazing to me is the ability to mischaracterize through mischaracterization. You use your own argument to argue for or against another position of your, or Mr. Mosler’s, own position. Previously you have argued in one blog or response or another your position that increases in the money supply have little or no relation to increases in inflation. Then you argue against that position with a position that too much money as spending power causes inflation. Then you use your refusal to see the obvious as reason to denigrate someone elses position by belittling them with statements such as, “Rather than repeatedly mischaracterizing, then blindly leaping to find fault, read. You can learn that way.” Rather than go on and on with this dialogue that is obviously going nowhere, let me make a point that should be obvious. I and many others like me, I’m sure, would love for your position to be true. It would be amazingly simple for the gov’t to spend as much as necessary on infrastructure, which is in dire need of money, healthcare, which is arguably one of the key areas of consideration today, and to put citizens back to work and end this recession. The one thing you refuse to admit in your arguments is that your own position that the money the government would necessarily spend to accomplish these goals has no real value other than “full faith and credit.” A truth, I would think you would be ready to admit, is that “full faith and credit” would be seriously damaged in the minds of the great majority of American citizens and the entire world, if your recommendations were actually implemented. Not that it couldn’t be done, but it would be psychologically disasterous to the “full faith and credit”. You are making a very difficult situation much to simplistic to solve. Do you actually posit that with all the great minds in today’s society, you and Mr. Mosler are right and all others are wrong? Is this a small bit of unwarranted arrogance? Or a great deal of misplaced ineptitude? Or just a failure to see the big picture because of blinders in regards a simplistic approach to solving a much more difficult equation?
With kind regards,
1. Money supply has had little or no influence on inflation, which actually has been related to oil prices.. Increases in money supply, without equivalent increases in demand, could cause inflation in the future. Can you see the difference?
2. Clearly, you have no idea what my recommendations are, and no wish to learn them.
3. Federal “debt” has increased a massive 1400% in just the past 30 years without that loss of full faith and credit you fear. [See: https://rodgermmitchell.wordpress.com/2009/11/24/federal-debt-a-ticking-time-bomb/%5D How much increase would cause the time bomb to explode?
4. All advances in science come when a few disagree with the many “great minds.” I remember the poor fellow who first proposed birds evolved from dinosaurs. What a beating he took from the “great minds.”
As you wish neither to read nor to learn — a pity for someone only 63 — there seems no further reason for you to waste your time on Mr. Mosler’s, Professor Wray’s and my ignorance.
Rodger Malcolm Mitchell
Some bonds are more prone to default than others. Warren Buffet says ” when the tide goes out, you get to see who is swimming naked”. Our local government’s cant afford to continue to dole out platinum healthcare
Correct: Local governments cannot afford increased health care costs; the federal government can. In fact, the federal government could support Medicare and Social Security, without FICA taxes, which should be eliminated.
Rodger Malcolm Mitchell
Our “full faith & credit” has just about lost all it’s credit. Fully financing Medicare & Social Security would destroy what little faith is left. Once all the “faith & credit” is gone, everyone just pack your bags and the last one out, please turn off the lights.
“. . .Just about lost all it’s credit.” “. . . destroy what little faith is left.” “. . . pack your bags . . . ” “. . . turn off the lights.”
Economics is a science. Treat it as such. Generalized, meaningless statements, are common among people who hate federal debt, but are not quite sure why. Be specific. Exactly what would happen and what is your evidence?
Rodger Malcolm Mitchell
As you have previously stated, the US dollar is backed by the “full faith and credit” in the currency. We are beyond economics. The science of economics is no longer a factor. “Faith” and “Credit” is psychological when referencing the value of the dollar at this point. The Chinese, our largest backer in credit issuance, has ceased investing and is now divesting. Along with many of the world’s other sovereign wealth funds. (If anyone has any wealth funds left.) Thus, the loss of credit. With the loss of credit, comes the loss of faith. Without credit and faith, there is absolutely NO value, because the value of paper or the worth of the electronic entry is NIL. Psychology is not an exact science. And, we are absolutely on the cusp of a psychological collapse in the value of all the world fiat currencies. Printing of paper, or continued electronic entries without production, is the exact opposite of what needs to be done at this point in time. The psychological impact on the current world economy, and the belief in the value of money, or the lack thereof, is now in control. Nevertheless, your premise will never be proven to be correct or incorrect, because there is no one in a position of power stupid enough to try it.
“Faith and credit is psychological” Full faith and credit is not merely psychological. See http://www.rodgermitchell.com where you will find the specific economic meanings of that term, to wit:
1.The government will accept U.S. currency in payment of taxes
2. It will pay it’s debts (T-bills et al) and its bills with U.S. currency
3. It will force all your domestic creditors to accept U.S. currency, if you offer it, to satisfy your debt.
4. It will not require domestic creditors to accept any other money
5. It will maintain a market for U.S. currency
6. It will continue to use U.S. currency and will not change to another currency.
7. All forms of U.S. currency will be reciprocal, that is five $1 bills always will equal one $5 bill and vice versa.
All money is debt and all debt requires collateral. The above guarantees form the collateral for U.S. money and are very powerful guarantees, indeed.
“Without credit and faith, there is absolutely NO value, because the value of paper or the worth of the electronic entry is NIL. Wrong on several counts. U.S. full faith and credit continues, which is why the world continues to honor dollars. If China and all other nations stopped buying T-bills tomorrow, we simply would create dollars rather than creating and selling T-bills. T-securities are an unnecessary relic of the gold standard days.
“Nevertheless, your premise will never be proven to be correct or incorrect, because there is no one in a position of power stupid enough to try it.” My premise is that deficit spending is necessary to grow the economy, which is exactly what the government has “tried” on many occasions, including the trillions being spent today.
What do you suggest the government should do, now and in the future, and what is the data that supports your belief?
Rodger Malcolm Mitchell
Just want to say what a great blog you got here!
I’ve been around for quite a lot of time, but finally decided to show my appreciation of your work!
Thumbs up, and keep it going!
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true… you know what they say…Ive worked in the private sector … they expect results!
I find it interesting that this article is still being referenced in December of 2014. http://www.dailykos.com/story/2014/12/01/1348557/-Which-number-is-bigger-3-5-Trillion-or-68-Trillion
I would like to see if Mr. Payne ever saw the light, given the experience of the US vs. European austerity. Thanks for taking the time to spend with him educating him on the issues. His questioning and your responses have also helped educate me. Thanks!
Mr. Payne is a gold bug, the group most resistant to facts and logic. They just know in their souls that gold is money, the only real money, and dollars are “counterfeit.”
They also know for certain, that the debt “bomb” is ticking, and that inflation is a result of deficit spending rather than being an intentional act by the Fed.
Finally, they do not realize that about 80% of all dollars in existence were created by bank loans, and this “shocking” fact, doesn’t seem to register on their “cut-federal-spending” radar.
In short, they are hopeless.