An alternative to popular faith
Well, they just keep on doing it. The February 8, 2010 Forbes Magazine’s cover story is titled, “The Global Debt Bomb,” by Daniel Fisher.
It contains the usual scary words, for instance: “The world has issued so much debt in the past two years fighting the Great Recession that paying it all back is going to be hell –for Americans, along with everybody else. Taxes will have to rise around the globe, hobbling job growth and economic recovery.” Etc., etc., etc. You get the idea.
Never mind that this is exactly the same “sky is falling” commentary — even using the words “debt bomb” — we have been hearing from pundits since 1940 (See https://rodgermmitchell.wordpress.com/2009/11/24/federal-debt-a-ticking-time-bomb/). Never mind that “government debt” is an exact synonym for “government money,” which needs to grow if an economy is to grow.
Never mind that “paying it back” is not, and since 1971 (the end of the gold standard) never will be, a problem for a sovereign nation with the unlimited ability to create money. Never mind that using this unlimited ability has not caused inflation, which in any event could be cured by raising interest rates. And never mind that taxpayers do not pay for federal debt and tax rates are not related to federal debt.
In short, never mind history, and just keep making the same old, wrong predictions, using the same old words, because let’s face it, fear-mongering sells magazines, and why make up new words when cribbing the old words is so much easier.
Pick up that issue of Forbes, read Fisher’s article, and wherever you see the word “debt” replace it with the word “money.” That will show you the reality. Also, if you know how to contact Fisher, you might ask him to supply historical proof that, as he says, “. . . the taxpayer will have the devil to pay.”
Rodger Malcolm Mitchell
www.rodgermitchell.com
#Monetary Sovereignty - Mitchell 
Rodger,
I’m, currently reading your book and have come upon two statements today that either seem to contradict other statements in the book or perhaps I’m just misunderstanding them. On page 61 you state that “a limited supply of money would cause lenders to raise prices (interest rates)”. As I understand it, your thesis is that generally there is not enough money. If that is so, wouldn’t that translate to a “limited supply” and shouldn’t we have accordingly expected to see interest rates climb in the past several years?
On a different topic, on page 64 you state that “even with a balanced budget the total real value of existing money declines due to inflation…. If inflation were but 2%, those 5 trillion dollars would be worth in constant dollars, 4.9 trillion in one year”. I have to admit, I’m unable to get my brain around this statement as it is the exact opposite of what would seem to make sense. Why would a constant amount of money result in inflation? I’m willing to accept the idea that a larger amount of money does not necessarily translate to inflation, but I don’t see how a constant supply of money does! Thanks for clearing these issues up.
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Jack,
Ordinarily, a limited supply of anything causes prices to rise. However, in the case of interest rates, the federal government is the elephant in the room. The government raises rates when it wishes to cool inflation. That action outweighs the markets normal tendency to raise rates when the money available for lending is in limited supply.
A constant amount of money is not what causes inflation. Think of it this way: Given a 2% inflation, $5 trillion in year one is worth only $4.9 trillion in year 2. That is why a balanced budget yields a decline in the supply of constant money, which causes recession.
Rodger Malcolm Mitchell
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Rodger,
Has the bond market gone mad?. This’shouldn’t’ be possible. Is there any hidden reason for the following?
At the federal level, we can see that the bond market is growing increasingly wary of the government’s spendthrift and “kick the can” attitude. This article from Bloomberg titled “Obama Pays More Than Buffett as U.S. Risks AAA Rating” reveals that two-year notes sold in February by Warren Buffett’s Berkshire Hathaway yield 3.5 basis points less than Treasuries of similar maturity. While 3.5 basis points is not a huge amount (100 basis points equals one percentage point), the simple fact that the bond market is saying that it’s safer to lend to Warren Buffett than Barack Obama is telling.
And Buffett’s not the only one enjoying this safer than “risk free” rate on his notes. Procter & Gamble Co., Johnson & Johnson, and Lowe’s Cos. debt also traded at lower yields than Treasuries of similar maturity in recent weeks, a situation former Lehman Brothers Holdings Inc. chief fixed-income strategist Jack Malvey called an “exceedingly rare” event in the history of the bond market.
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I don’t know this actual circumstance, but something like that can have to do with timing in a fast moving market. Example: The bond market is moving down rapidly (interest rates rising). You buy P&Gs with a 1% coupon, while T-bills are .95%. The next day those P&Gs have dropped, so they actually pay 1.5%, while T-bills are at 1.2%. So the P&Gs you already own are now paying you below T-bills on your investment.
Remember, if the dollar goes to hell, P&G bonds will be worthless. It’s impossible for any security denominated in dollars to be safer than Treasuries, because any potential default by the U.S. government would impact all dollar-denominated debt.
What would a less-than-AAA rating mean? The federal government will allow massive inflation? Not likely. They have total control. The federal government will not be able to print enough money to pay its bills? Impossible.
It’s senseless. The credit agencies were off base before. If they lower the T-security rating, they’ll be off base, again.
Rodger Malcolm Mitchell
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I feel far more people will need to read this, incredibly excellent info.
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