Only two things keep people in chains: The ignorance of the oppressed and the treachery of their leaders
Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.” ====================================================================
Perhaps no words more accurately and succinctly illustrate the confusion in economics than “Monetary Sovereignty.”
It is not a theory, hypothesis, or philosophy. It is a description of the way federal financing works.
A Monetarily Sovereign government has the exclusive and unlimited power to create its sovereign currency. Monetary Sovereignty is the foundation of economics.
The United States is Monetarily Sovereign. It has the exclusive, unlimited power to create the U.S. dollar.
China, Canada, Australia, the UK, and Japan are Monetarily Sovereign. They have the exclusive, unlimited power to create their sovereign currencies.
By contrast, America’s states, counties, cities, businesses and people all are monetarily non-sovereign. They are users, not creators of the dollar and not sovereign over its creation.
In the 1780s the U.S. government created the very first dollar from thin air, by first creating from thin air, all the laws and rules that made the dollar exist.
Being sovereign over the dollar, the U.S. can give the dollar any value it wishes. It can make the dollar equal to three euros, an ounce of silver, or a partridge in a pear tree.
The U.S. federal government can never unintentionally run short of dollars. Even if all federal tax collections totaled $0, the federal government could continue spending forever.
Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”
Alan Greenspan: “Central banks can issue currency, a non-interest-bearing claim on the government, effectively without limit. A government cannot become insolvent with respect to obligations in its own currency.”
St. Louis Federal Reserve: “As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational.
Illinois, Cook County, and Chicago are monetarily non-sovereign. The dollar is not their sovereign currency, and they do not have the unlimited power to create dollars.
France, Germany, and Italy are monetarily non-sovereign. They do not have exclusive, unlimited power to create the currency they use, the euro. That power is owned by the European Union.
You, your business, and I also are monetarily non-sovereign. Even Bill Gates and Warren Buffet do not have the unlimited power to create dollars. They are monetarily non-sovereign.
Because our Monetarily Sovereign nation has the unlimited power to create its sovereign currency, it never needs to ask anyone for dollars.
The federal government doesn’t need to tax, and it never borrows dollars. It never can be forced into insolvency. It can pay any dollar-denominated invoice of any size at any time.
The federal government creates money by paying its bills. To pay its bills, the government sends instructions (not dollars) to creditors’ banks, instructing the banks to increase the dollar amounts in creditors’ checking accounts.
These instructions are in the form of checks or wires. The moment the bank obeys those instructions, dollars are created in creditors’ checking accounts, and the M1 money supply measure is increased. This is how the federal government creates dollars — not by “printing,” but by sending instructions.
The U.S. has created many trillions of dollars, simply by pressing computer keys, and it will continue to do so. It does not “owe” anyone for creating these dollars.
The U.S. government cannot live beyond its means; it has no means to live beyond. By contrast, if the debts of France, Germany et al, exceed their ability to obtain euros they, as monetarily non-sovereign nations, could be forced into insolvency.
They did not create the euro, nor do they have the unlimited ability to pay euro-denominated bills.
Everything you believe about your personal finances — debts, deficits, spending, affordability, saving, and budgeting — are inappropriate to U.S. federal finances.
For this reason, your intuition about U.S. financing likely is wrong.
Because the U.S. cannot be forced into insolvency, none of this nation’s agencies can be forced into insolvency. The U.S Supreme Court, the Department of Defense, Congress, Social Security, Medicare, and any of the other 1,300 federal agencies cannot become insolvent unless the federal government wishes it.
(All the talk about Social Security or Medicare running short of dollars is misguided. Even if FICA were eliminated, Social Security and Medicare would not need to default on their obligations, unless Congress wished it. They could continue to pay benefits.)
The unlimited ability to create money is an uncontested fact for Monetarily Sovereign nations although, at any given time, economic growth, inflation, deflation, recession, depression, and social factors may influence a nation’s decision to create money.
A Monetarily Sovereign nation even can choose to declare insolvency, for various reasons, but this would be an arbitrary matter of choice, not a forced necessity.
An example would be Congress’s failure to raise the useless debt ceiling. This could force the U.S. into insolvency.
There are those who do not (or do not wish to) understand the implications of Monetary Sovereignty. You never will see that term on such debt hawk websites as The Committee for a Responsible Federal Budget” or the Concord Coalition.
If you go to those sites you will see federal debt described in the same terms as personal debt – as an unsustainable obligation.
While debt can be unsustainable for you, me, businesses, states, cities, counties, and the monetarily non-sovereign EU nations, no dollar debt is unsustainable for the U.S. government.
Debt hawks suffer from Anthropomorphic economics disease — the false belief that federal finances are like yours and mine.
The U.S. was not always completely Monetarily Sovereign. Prior to 1971, the U.S was on a gold standard. It had a sovereign currency, but it did not give itself the unlimited ability to create that currency.
The government passed laws saying every dollar must be matched by an arbitrary amount of gold. No gold; no dollars.
The amount of gold needed to back the dollar was arbitrarily determined by Congress and the President, and that requirement could be changed at any time by Congress and the President, a fact often forgotten by gold lovers.
Even while on a gold standard, the dollar actually was backed by federal fiat, not by gold.
The EU nations are on a euro standard. Their ability to create euros is limited by law.
Our states, counties, and cities are on a dollar standard. Their ability to create or obtain money by borrowing or taxing is limited by local law, by voters, and by lenders.
The financial problems of the euro nations are due not to deficits and debt.
These nations’ financial problems are due to them having surrendered the single most valuable asset any nation can own — their Monetary Sovereignty — thus preventing them from servicing their debt by creating money.
Some debt hawks say that a Debt/GDP ratio exceeding 100% puts a nation on the brink of bankruptcy. Yet today, Japan has a Debt/GDP ratio above 200%, and that Monetarily Sovereign nation has absolutely no difficulty servicing its debt.
When the U.S. exceeds that magical 100% ratio, it too will have no trouble servicing its obligations.
The debt hawks, having learned nothing from this, continue to wail about the meaningless Debt/GDP ratio, which because it is a classic apples/oranges comparison, is devoid of significance (the numerator is a 200-year measure of cumulative T-securities outstanding; the denominator is a one-year measure of spending. The two are unrelated).
So-called federal “debt” is nothing more than the total of dollars deposited into T-securities accounts at the Federal Reserve Bank. These accounts are similar to safe deposit boxes. The government never touches the dollars in those accounts. The contents are owned by the depositor, not the government.
To “pay off” the federal debt, the Federal Reserve Bank merely takes dollars from these T-securities accounts and adds them to the holders’ checking accounts, the same way you take dollars from your safe deposit box and add them to your checking account.
No new dollars are needed.
Thus, Congress easily could eliminate all federal debt, tomorrow. That would require pressing a few computer keys. It would be a simple asset exchange, with no new money created and no inflation consequences.
Because a Monetarily Sovereign nation has the unlimited ability to create its sovereign currency, that nation needs neither to tax nor to borrow. Why would it?
Further, that nation does not use tax money or borrowed money to pay for spending. Federal income does not fund federal spending. Taxes and borrowing are unnecessary.
When the states, counties, cities, you and I spend, we transfer dollars from our checking accounts to some other checking accounts. When the federal government spends, it creates new dollars.
If U.S. federal taxes fell to $0, or rose to $100 trillion, neither event would reduce by even one penny, the federal government’s ability to create the money to pay any size bills.
The spending by Monetarily Sovereign nations had been constrained only by fears of inflation. However, since 1971, the end of the gold standard and the beginning of Monetary Sovereignty, there has been no relationship between federal deficit spending and inflation.
More about this at Inflation and at SUMMARY.
Because taxes do not pay for federal spending, FICA does not pay for Social Security benefits. FICA could (and should) be reduced to zero. Benefits even could be tripled or more, and this would not affect by even one penny the federal government’s ability to pay Social Security benefits.
Recently, the federal government made a profit on its purchase and sale of corporate stock (GM et al). All such profits came out of the economy, and therefore the government’s profits were recessive — harmful to the economy and useless for the federal government.
By reducing the money supply, federal profits = losses for the economy.
Federal surpluses = economic losses.
Unlike state and local tax dollars, federal tax dollars are destroyed upon receipt by the Treasury. Taxes come from private checking accounts, the contents of which are part of the M1 money supply measure.
But when the dollars reach the Treasury, they instantly cease to be part of any money supply measure. The reason: The Treasury has infinite dollars, so no measure applies.
Since the federal government neither needs nor uses tax dollars why does it tax?
- To control the economy by penalizing what the government wishes to discourage and by using tax cuts and loopholes to encourage what the government wishes to reward
- To guarantee demand for the U.S. dollar by requiring dollars to be used for tax payments.
- The rich, who run America, like taxes because they pay at much lower percentages (via tax loopholes) than you or me. This widens the income/wealth/power Gap between the rich and he rest, effectively making the rich richer.
On occasion, the federal government has “saved” money by firing, or reducing the pay of, federal employees. Those so-called “savings” are money not sent into the economy, and therefore, damage the economy.
The federal government, having the unlimited ability to create dollars, never needs to “save” dollars.
Politicians and the press do not yet seem to understand Monetary Sovereignty. However, no one intelligently can discuss national deficits and debt without acknowledging the implications of Monetarily Sovereignty.
The concept is the basis for all modern economics. Monetary Sovereignty is to economics as arithmetic is to mathematics.
The next time you go to any economics blog or website, see if the contributors understand Monetarily Sovereignty and use it in their discussions.
If they do, it might be a good site. If they don’t, the site is worthless. All debt hawk objections revolve around just two questions:
- How much money can the federal government create? Answer: Infinite
- How much money should the federal government create? Answer: As much as necessary to grow the economy and to narrow the gap between the rich and the rest.
Despite an astounding 50,000% increase in the federal debt from 1971 through 2020, we did not go anywhere near the point of uncontrollable inflation (which is controlled by procurement and distribution of scarce goods and services).
Ironically, the best cure for inflation is more federal deficit spending. The reason: Inflations are caused by shortages, usually of food and/or energy. Additional federal spending can cure the shortages that cause inflation.
Though the Federal Reserve is tasked with controlling inflation, only Congress and the President can obtain the goods and services, the scarcity of which causes inflation.
The Fed mistakenly uses interest rate increases to stem inflation, but those increases increase the costs for goods and services. Thus, contrary to popular wisdom, increasing interest rates exacerbates inflation.
Thus, most of our economic problems are caused by the politicians, the media, the economists, and the public not recognizing the implications of Monetary Sovereignty.
By crippling the federal government’s ability to grow the U.S. economy, the politicians have injured more Americans than terrorists.
I suggest you next read the data at Summary, for detailed answers to your questions.
Question of the day: How does a tax increase or spending decrease affect unemployment or economic growth? Answer: When the federal government taxes, dollars are removed from the economy.
When the federal government spends, dollars are added to the economy. A federal deficit is growth income for the economy.
Therefore, both tax increases and spending decreases reduce economic growth and increase unemployment.
Because GDP = Federal Spending + Non-federal Spending + Net Exports, a reduction in federal spending always reduces economic growth.
Money is the lifeblood of an economy. Cutting the federal deficit to cure a recession is like applying leeches to cure anemia. [For more on this subject, see: Free Lunch]
…………………………………………………………………………
Rodger Malcolm Mitchell [ Monetary Sovereignty, Twitter: @rodgermitchell, Search: #monetarysovereignty Facebook: Rodger Malcolm Mitchell ]
THE SOLE PURPOSE OF GOVERNMENT IS TO IMPROVE AND PROTECT THE LIVES OF THE PEOPLE. The most important problems in economics involve:
- Monetary Sovereignty describes money creation and destruction.
- Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”
Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics. Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps: Ten Steps To Prosperity:
- Eliminate FICA
- Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
- Social Security for all
- Free education (including post-grad) for everyone
- Salary for attending school
- Eliminate federal taxes on business
- Increase the standard income tax deduction, annually.
- Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
- Federal ownership of all banks
- Increase federal spending on the myriad initiatives that benefit America’s 99.9%
The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.
#Monetary Sovereignty - Mitchell 
think you and I both agree that the insurance of our nation’s is the most significant economic issue facing, not only the US, but the western world.
We also agree that the US’s authority to issue all of the nations money is inherent in its sovereignty, established by the Supreme court in 1884 (Juliard v Greenman).
We also agree that the government does issues some money. But we do not agree on the quantity of money the government has issued.
I ask you to consider the problem of the national debt. If the government issued the trillions of dollars you claim, how do you explain such a large national debt.
According to the US Coin and Currency report the US has not issued currency since 1967 with the last government note being retired in 1971. There are however, several million dollars of government notes outstanding, most likely in private collection. Even during the Civil War the amount of currency issued by the government was at most on the order of $500 million. Aside from currency, the government mints coins, about $40 billion are reported to be in circulation at present.
Let me make my understanding clear. Although the US government has sovereign power and authority, it simply does not act as a monetary sovereign. For the remainder of the estimated $50 trillion money supply in our economy is federal reserve money. The federal reserve system creates 99.92% of all US money.
The Federal Reserve Act of 1913 delegated the government’s authority to a privately owned assemblage of banking corporations that operates for the benefit and profit of the shareholders.
Members of the Federal Reserve System include national banks, whose membership is required, and state banks, whose membership is optional. Membership requires a bank to buy stock in the Federal Reserve System. Most large banks under state charter have joined the system.
The Federal Reserve system incorporates provisions of the National Banking Act of 1863 that allowed nationally chartered banks to issue a uniform bank note backed by U.S. government bonds, allowing it to convert bank, or check book money into legal tender currency. In response to a drain on the US gold supplies that peaked during the Nixon administration, the currency reserve shifted from a commodity reserve backing our currency to government bonds completely backing it.
The recent QE2 (Quantitative easing two) carried out by the Fed is a fine example of how the system functions to create money directly out of nothing by fiat and profit the shareholders of the corporation. The Fed – not the government – exercised the authority delegated by congress to issue $600 billion in bank credit, and it used that credit to buy government bonds form banks and hedge funds. Bond traders bought the bonds at a discount from the treasury department, then turned around and sold them to the fed at face value, their turning a profit in the process. The current rate on ten-year bonds is 3.4% / year, or 34% over the life of the bond.
When the government spends the borrowed money into the economy, it is deposited in member banks. A word of clarification: when money is ‘deposited’ in a bank, it is lent to the bank. It becomes the bank’s money. The bank lends out a portion of that money in accordance with the reserve rations established by the Fed, usually 9:1. When the new loan money is deposited in any bank in the system, the process is repeated. Most of the money circulating in the economy is generated by fractional reserve lending. The total amount of money that can be created in this process is nine times the national debt.
The fault in the system is that all money created by this system is temporary for it must all be repaid – with additional interest. Since 99.92% of the money is created as the principal of loans, and no one creates money to pay the interest, the loan contracts are impossible to repay when take as a collective whole. This flaw can be obscured when the money supply is relatively small by the banking system increasing the size and number of new loans, replacing money that was destroyed when old loans were repaid and providing new money to pay the interest. The growth in debt is exponential, doubling every decade or so, its becoming unsustainable – a collapsing debt bubble, like the recent housing market.
All our money is borrowed, and it must be repaid with interest. If the banks stopped making new loans, and people continue to make pay their bills; at 6% interest, the banking system will take half of the money out of the economy in just seven years.
My goal is to have the government do what you say it already does.
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Bill,
You asked, “If the government issued the trillions of dollars you claim, how do you explain such a large national debt.”
The federal deficit is the difference between tax receipts and spending. By law, the Treasury is required to issue T-securities (aka “borrow”)in the amount of the deficit. This was necessary when we were not Monetarily Sovereign, but no longer is. The total of outstanding T-securities is the “debt.”
The federal government (unlike state and local governments) does not spend “borrowed” money, nor does it spend tax money. Taxes and T-securities could be eliminated tomorrow, and this would not reduce by even one dollar, the federal government’s ability to spend.
The federal government spends by crediting the bank accounts of its creditors, which it can do endlessly. For a more detailed discussion of this, see Ron Paul, Ignorance.
You said, “The bank lends out a portion of that money in accordance with the reserve rations established by the Fed, usually 9:1.”
Actually, fractional reserve banking is a myth. Bank lending is not limited by reserves. A bank with zero deposits could lend billions, as the Fed supplies banks with all the reserves they want, via the discount window.
What limits bank lending? Answer: Capital.
Rodger Malcolm Mitchell
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Rodger,
So if the U.S. decided to pay all of its debts by simply creating money, what do you think the impact would be on the U.S. and World economies?
Thanks,
Rick
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Rick, it is the act of borrowing that creates money. Example:
When China lends us money, it buys U.S. T-securities. China deposits already existing dollars into its checking account at the Fed. The Treasury creates out of thin air, T-securities, which are a form of money. Then the Treasury exchanges those T-securities for the dollars in China’s account. It’s just an exchange of one form of money for another. The Treasury then destroys the dollars.
When the T-securities are redeemed, the Treasury creates dollars to put back in China’s account and destroys the T-securities.
If you follow the process, you’ll see that neither borrowing nor redeeming creates net money. One form of money merely is exchanged for another form of money.
Rodger Malcolm Mitchell
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Please, forgive my temporary ignorance regarding Monetary Sovereignty. I have just started to research, and hope to comprehend this ‘economic conundrum,’ if you will.
Would you be so kind as to explain how an entity becomes Monetarily Sovereign: Is it by self-proclamation?
What dissolved the requisite that each U.S. dollar be backed up by a fixed amount of gold?
How was the U.S. able to, or allowed to discard their previously adhered to ‘gold standard’ in 1971?
Must foreign entities support – to some extent, at least politically – the monetary sovereignty of an entity in order for it to be functional?
What would motivate an entity (country) to surrender their Monetary Sovereignty?
What would or could be the benefit(s) of such surrender?
Once surrendered, is it possible for the surrenderer to regain/reclaim Monitary Sovereignty?
I intend to continue my study of Monetary Sovereignty while awaiting your response. I am fascinated by the inherent ‘implications’.
I sincerely appreciate your consideration of my queries.
Thank you.
Chris Whaite
reply to: pssst58@aol.com
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Chris, you asked:
“Would you be so kind as to explain how an entity becomes Monetarily Sovereign: Is it by self-proclamation? What dissolved the requisite that each U.S. dollar be backed up by a fixed amount of gold?”
President Nixon decreed that the U.S. would not provide gold at a fixed exchange for dollars.
“How was the U.S. able to, or allowed to discard their previously adhered to ‘gold standard’ in 1971?”
The only alternative, for other nations, was not to accept dollars.
“Must foreign entities support – to some extent, at least politically – the monetary sovereignty of an entity in order for it to be functional?”
As I said, the foreign entities could have refused to accept dollars.
“What would motivate an entity (country) to surrender their Monetary Sovereignty?”
The belief that being monetarily non-sovereign was advantageous, usually as an anti-inflation device. Additionally, the euro nations thought the euro would facilitate trade. Some tiny nations feel it is helpful to “peg” their currency to a stronger currency, often the dollar. Any sort of “peg,” whether to gold, silver or a foreign currency, makes a nation monetarily non-sovereign.
“Once surrendered, is it possible for the surrenderer to regain/reclaim Monitary Sovereignty?”
Yes, through history, the U.S. has been off and on the gold standard. Thank goodness for Nixon’s decree, else the U.S. would be bankrupt, today.
Rodger Malcolm Mitchell
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US borrow money from the fed, creating debt.. which can be payed only by taxes.
The eternal legalized mafia we all are trapped in.
Us doesnt have the soverenity over the dollars.. the FED has it.. which is a private bank
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vittorio,
Wrong on many counts.
Federal debt is the total of outstanding T-securities, which the Treasury creates out of thin air. The total is 8 trillion dollars or 12 trillion dollars, depending on how you count. Where did the Fed get the 8 – 12 trillion dollars you claim they lent the U.S.?
Most importantly, where did you get your information?
Rodger Malcolm Mitchell
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I’m also starting to research on the subject and I’m new to this whole concept. But didn’t the real estate bubble occured because of excessive money supply? Banks lending money left and right and the prices of houses going up. Inflation was rising till the crisis, deflation only came subsequently. What’s your thoughts on that? I repeat that I’m new to this idea.. don’t be too harsh with me
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Joel,
The real estate bubble occurred because of excessive real estate purchases by people who couldn’t afford their mortgages, not because of excessive money supply.
You might want to read Is federal money better than other money?
Rodger Malcolm Mitchell
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Rodger,
If I follow you here, there really is no need for any taxation by the federal government, it does not need money from individuals to operate when it’s monetarily sovereign. So why are we paying federal taxes?
If inflation is the only consequence of massive dollar creation and we did not have any with the recent “stimulus” then it would seem that inflation is a pretty tough thing to cause. What would it take to create inflation through dollar creation? Reading your other material, I suspect it’s impossible and only controlling energy prices is the way to control inflation.
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Chris,
Taxes don’t pay for federal spending. And some economists felt federal taxes were necessary to provide demand for dollars (people need dollars to pay taxes), but I convinced these economists there are sufficient state and local taxes for that purpose.
If all federal taxes suddenly were eliminated, I believe we would have inflation. Sudden shocks can have bad consequences. Instead, I have suggested a gradual elimination, beginning with the elimination of FICA.
After that, I suggest the gradual increase in the Standard Deduction, until over a period of years no one pays federal taxes.
Inflation is a complex relationship between dollar supply and demand, with demand being a complex relationship between risk and reward. So, I do not know exactly how many dollars would be required to cause inflation, at any given level of demand.
Controlling oil prices (if that were possible) would help control inflation, but there would be side effects, not the least of which would be the excessive use of oil. Today, the high price of oil helps stimulate the search for renewable energy sources — a necessary thing.
For instance, nuclear energy suddenly has acquired a bad name. Today, the price of oil is about $100 per barrel. If the price were to hit $200 or $300, even the nuclear haters would beg for more nuclear electric plants.
In general, federal taxes are a relic of gold standard days, and mainstream economics also is a relic of gold standard days. So that is why we have federal taxes. Remember, Keynes died in 1946 and Nixon made us Monetarily Sovereign in 1971. Mainstream economists have not graduated beyond Keynes, because that is what they were taught in school.
Rodger Malcolm Mitchell
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This article states that a monetarily soveriegn nation can sustain any level of debt because of it’s ability to create money. Could you please address this concern I have. If the nation such as the United States tried to pay down its debt using money it is creating would it not become almost impossible? The more money they create to pay down the debt, the less that money is actually worth. The less the money is worth, the more that will need to be created and it will become and ever increasing spiral. The debt holders would not accept money that would be in effect, worthless paper. I may be wrong but please address this.
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Dillon, here is how it works.
1. The U.S. creates dollars out of thin air. That is the point at which dollars are created.
2. Some of these dollars go to other nations, for instance China, to pay for imports.
3. China exchanges its dollars for T-securities. (We call that “borrowing.”) No new money is created. It simply is an exchange of one form of money (dollars) for another form of money (T-securities).
4. When we pay off the “debt,” we exchange dollars for China’s T-securities. Again, no new money is created. It’s just another exchange of one form of money for another.
In short, paying off federal debt has no inflation repercussions. Federal borrowing and repaying is inflation neutral. Unfortunately, the politicians and the media do not understand this simple process.
Of course, federal finances are different from personal finances. When you pay off your personal debts, you actually destroy money, which is anti-inflationary.
Rodger Malcolm Mitchell
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Wow..very interesting read. I have been interested in this for a while. Do you feel that this is the very reason why the UK will never join the Euro? Joining the euro would result in the UK giving up its right to print pound notes during stagnation or periods of economic woe. Is it true then, that the only envisaged problem facing the UK would be if everyone stopped accepting pound notes?
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Yes, the U.K. is Monetarily Sovereign and never can run out of money. I cannot envision the world not accepting U.K. money.
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How is this any different to what Germany did in the 1920’s?
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Ramal,
Not even in the same world.
I’ll quote from Wikipedia: “. . . the “London ultimatum” in May 1921 demanded reparations in gold or foreign currency to be paid in annual installments of 2,000,000,000 (2 billion) goldmarks plus 26 percent of the value of Germany’s exports.
“The first payment was paid when due in June 1921.[8] That was the beginning of an increasingly rapid devaluation of the Mark which fell to less than one third of a cent by November 1921 (approx. 330 Marks per US Dollar). The total reparations demanded was 132,000,000,000 (132 billion) goldmarks which was far more than the total German gold and foreign exchange.
“An attempt was made by Germany to buy foreign exchange with Marks backed by treasury bills and commercial debts, but that only increased the speed of devaluation. The lower the mark sank in international markets, the greater the amount of marks were required to buy the foreign currency demanded by the Reparations Commission.”
Despite massive deficits (i.e., WWII, Reagan-era and the most recent recession), the U.S. has not even come close to hyperinflation, and never will.
Germany, Zimababwe, Argentina, Italy, China et al, which have suffered hyperinflations, each had specific and unique circumstances, unrelated to simply creating money.
Rodger Malcolm Mitchell
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I am not sure how you answered my question. You didn’t explain how Germany printing money in the 1920’s to pay debts is any different to your idea.
Germany was already suffering rapid inflation after the First World War and before the imposition of the reparations as they were just printing marks to meet obligations.
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Ramal,
The German hyperinflation was caused by the WWI reparations imposed by the Allies on a monetarily non-sovereign government.
By contrast, the U.S. is not paying reparations and is Monetarily Sovereign.
In short, the German situation was diametrically opposite the U.S. situation.
Rodger Malcolm Mitchell
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I am not talking about the hyperinflation scenario specifically. Hyperinflation didn’t just appear in 1920’s Germany.
It was preceded by almost 10 years of significant inflation that was occuring throughout the entire of WW1. This was caused by printing vast amounts of money to pay for the war.
IE By the begining of 1920, the mark only had 1/40th of the purchasing power that it had in 1914.
I am not sure how Germany wasn’t monetarily non-sovereign either. It could print its own money and it was not pegged against Gold. Hence, that is why they were able to print vast amounts of money till Hyperinflation.
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I am not sure how Germany was* monetarily non-sovereign either
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Ramal,
Inflation can be caused by “printing vast amounts of money,” but you keep changing the subject. Your original question was, “How is this any different to what Germany did in the 1920′s?”
I’ve told you how it was different. Germany was forced to pay reparations in gold, which essentially is monetarily non-sovereign in itself.
Anyway, look around you. Do you see inflation? Why not?
Rodger Malcolm Mitchell
P.S. Quote from Wikipedia: “The German currency was relatively stable at about 60 Marks per US Dollar during the first half of 1921. Because the Western theatre of World War I was mostly in France and Belgium, Germany had come out of the war with most of its industrial power intact, a healthy economy, and arguably in a better position to once again become a dominant force in the European continent than its neighbours. But the “London ultimatum” in May 1921 demanded reparations in gold or foreign currency to be paid in annual installments of 2,000,000,000 (2 billion) goldmarks plus 26 percent of the value of Germany’s exports.
The first payment was paid when due in June 1921.[8] That was the beginning of an increasingly rapid devaluation of the Mark which fell to less than one third of a cent by November 1921 (approx. 330 Marks per US Dollar). The total reparations demanded was 132,000,000,000 (132 billion) goldmarks which was far more than the total German gold and foreign exchange.” Does that sound different enough?
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The Germans could print the mark money equivalent of the 2 Billion Goldmarks every year using your method to meet their deficet and this is essentially what they did.
They were not required to pay in Gold either. They could pay in Foreign Currency.
As I said before, Germany was already suffering rapid inflation prior to the 1921 reparations due to the same policy that you are advocating.
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There are several requirements before an economy can be described as monetarily sovereign. If the country is beholden to any other entity in a way that the other entity can enforce then sovereignty can be lost.
The main ones are:
– owing debt in a non-domestic currency. Weimar owed its debt in Gold. Many African countries have vast overseas debt, all of which has to be repaid in exports and hard labour – or by default.
– not having sufficient food supply. Zimbabwe was buying food from abroad in US dollars. This is just a variation of owing in a foreign currency.
– having a currency peg or being part of a currency union. Ireland, Greece and Portugal fall into this category. As did Argentina.
Currently the European Union is trying to force Iceland to take on a foreign debt in Euros – which would put Iceland is precisely the same position as Weimar Germany. Fortunately the population rejected that proposal and the law of the land is that debts can always be settled in the domestic currency at the current exchange rate.
The US, UK and Japan have none of these problems and as long as they remain that way they can use the extra economic capacity Monetary Sovereignty gives them.
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Exactly correct.
Rodger Malcolm Mitchell
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Britian and Japan import food. Importing food doesn’t make you monetarily non sovereign.
Why can’t you just extend that concept to any commoditity?
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It’s not the importing; it’s the paying-for. If they were forced to pay for everything in oranges, they would not be Monetarily Sovereign, since they do not have the unlimited ability to create oranges.
Rodger Malcolm Mitchell
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Ramal, paying in gold is identical with paying in foreign currency; both are monetarily non-sovereign.
I suspect you have no idea what the unique German situation was following WWI. Why do debt-hawks invariably refer way back to the German 1920’s as their model for what will happen to the U.S. in the 21st century?
Last year’s U.S. deficit was $1.29 trillion and the 2009 deficit was $1.41 trillion. So where is the uncontrollable inflation?
If you truly wish to know what causes inflation, see: Cause of Inflation.
Yes, it is possible for federal spending to cause uncontrollable inflation, just as it is possible for a child’s overeating to cause obesity. So when will you withhold food from a growing child? Answer: Only when the child shows signs of being overweight. Until then, the child needs increasing amounts of food to grow.
Try to end this debt-hawk fixation on uncontrollable inflation at some unknown time in the future. Better to focus on what that fixation costs Americans in federal services, now.
Rodger Malcolm Mitchell
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” Ramal, paying in gold is identical with paying in foreign currency; both are monetarily non-sovereign. ”
And as I asked before, how does that not make them non -sovereign? Why not print the equivalent amount of money required to buy the required amount of Gold or British pounds in order to meet your obligation?
” I suspect you have no idea what the unique German situation was following WWI. Why do debt-hawks invariably refer way back to the German 1920′s as their model for what will happen to the U.S. in the 21st century? ”
I know what happened to Germany. They were suffering massive inflation prior the 1920’s as they had to pay for the war. This inflation continued into the 1920’s and hyperinflation occured after the occupation of the Rhur since they were printing money to pay the workers.
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By the way, I don’t want to talk about the US.
I just want to talk about Germany.
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Then start your own blog.
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That was exactly the point. Their demand for a product they did not control (gold and foreign currency), caused the price of that product to rise in Marks. You have just described Monetary Sovereignty.
Rather than asking a long, long series of questions, please try to read up on Monetary Sovereignty for yourself. A few questions is fine, but this is getting ridiculous.
I try to help, but don’t expect me to do all the learning for you. Read and learn for yourself.
Rodger Malcolm Mitchell
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and who cares if the price does rise in marks. You can just print out a new set of money.
Anyway, I am not bothered any longer.
You will obviously also ignore the suituation prior to the 1920’s when Germany was suffering massive inflation even without reparations.
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As did the U.S. and nearly every other nation in the late teens and early 20’s. As I’ve said ad nauseam, excessive deficit spending can cause inflation. We just are nowhere near that point.
You began by asking, “How is this any different to what Germany did in the 1920′s?” I’ve explained how it is different. Do you now understand how it is different?
Rodger Malcolm Mitchell
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Surely what happened to Germany in the 1920’s and 30’s is consistent with your theory of monetary sovereignty.
“The Weimar Republic had some of the most serious economic problems ever experienced by any Western democracy in history. Rampant hyperinflation, massive unemployment, and a large drop in living standards.” These problems were caused by Germanys efforts to repay the debts put on it by the treaty of Versailles.
“Hitler oversaw one of the greatest expansions of industrial production and civil improvement Germany had ever seen, mostly based on debt flotation (refinancing long term debts into cheaper short term debt.”
So what is preferable? Taking vast quatities of money out of an economy or investing large amounts of money into an economy?
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Yes, you are correct, Graham,
I recall mentioning your point in an earlier post, when I asked something like, “How did this nation, that was in the midst of hyperinflation and essentially bankrupt, build itself, withing about five years, into the mightiest war machine the world had ever known?” The answer, of course, was deficit spending.
The debt-hawks, who repeatedly mention the German hyperinflation (which was not caused by deficit spending), neglect to mention the almost instantaneous recovery (which was caused by deficit spending).
Rodger Malcolm Mitchell
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Dear Mr Mitchell,
I have read with great interest your article above.
In your penultimate paragraph you appear to conflate deficits and inflation when you say “Does creating money cause inflation? It can, but despite an astounding 3,500% increase in debt since 1971, we are nowhere near the point where deficits cause inflation. As of this writing, we are fighting deflation.”
It is settled economics that the cause of inflation is either an increase in the quantity of money or an increase in the velocity of money. I agree that deficits per se do not cause inflation and the nation may borrow to fund gdp. But this borrowing must be repaid from the existing supply of money (plus an increase in the quantity of money to accord economic growth) over time. If we choose to print money to repay such debts then inflation must ensue. We are currently seeing this globally as reflected in commodity prices post Q.E. It would be exactly the same locally if, for example, the individual state deficits were to be funded by the expedient of the printing press.
Kind regards,
Lawbag.
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Lawbag,
You said, “It is settled economics that the cause of inflation is either an increase in the quantity of money or an increase in the velocity of money.”
Please remove your lawyer’s hat. There can be settled law, but never settled economics. The purpose of this blog is to show the errors in “settled” mainstream economics.
Why do you choose to ignore the 3500% increase in federal debt as a non-factor in inflation?
Since 1971, the end of the gold standard, inflation has not been related to money creation but rather to oil prices.
You said, “. . . the nation may borrow to fund gdp.” Are you referring to federal funding or private funding? There is a huge difference, as the federal government does not borrow to fund anything. Also, federal repayment of loans does not reduce the money supply.
You said, “If we choose to print money to repay such debts then inflation must ensue.” The government does not print money to pay its debt. It merely exchanges dollars for the T-securities it previously “printed.” Both dollars and T-securities are forms of money, differing in liquidity and interest payment.
What we are seeing globally is an increase in oil prices, which historically has impacted all other prices.
There is no comparison between state debt and federal debt, as the states are monetarily non-sovereign.
Rodger Malcolm Mitchell
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Monetary Sovereignty is a synthesis of macro-financial manipulation that someday would lead to self-distruction. As of now unusual inflation rates did not come to America but for a big price -heavy outflow of American dollars and talents. The present America labor force feels this negative impact now. The Federal government then issues more bonds and money to spend more on infrastructural (etc) projects to create more jobs. Everybody at home will be happy but without realizing their loss of ability to produce financially competitive goods right at home. So the country will keep on importing goods and printing more money. But what will foreign countries do with their dollar holdings. One way is to use the dollar holdings or their equivalents to secure strategic business advantages in other countries where dollars are still accepted as the standard exchange currency. Another way is to buy direct into USA properties and businesses. One day , America in the not so distant future will wake up to find out that the values of the currencies
of many countries will keep on appreciating against the US dollars . The general rule of cause and effect or law of supply and demand will prevail. I hope that somebody somehow will tell me that I am wrong and the worse case scenario will not come ! I am just an ordinary person.
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“One day.” “not too distant future.” “someday” “eventually.” “ticking time bomb.” “unsustainable.” These are the favorite words of the debt-hawks and apocalyptic sect leaders. I’ve read and heard these words to describe our deficits since 1940 (See: https://rodgermmitchell.wordpress.com/2010/04/27/the-federal-debt-is-unsustainable/) Meanwhile, not deficits, but the periodic lack of deficits, has caused a recession on the average every five years.
You are wrong, but the fact that you are a self-proclaimed “ordinary person” means you will not believe me. Is there a word for the syndrome: “I know nothing about this subject, but I am sure I am right”?
Rodger Malcolm Mitchell
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Hello again Mr Mitchell,
You say that inflation has not been related to money creation but rather to oil prices.
Surely this cannot be so; a rise in the price of oil is not inflationary per se.
If we consider a situation whereby there is a rise in the price of oil with no increase in the money supply : is it not correct to say that the higher price of oil removes an amount of money which cannot be spent on other goods and services ?
By the laws of supply and demand therefore, reduced demand for other goods and services would lead to lower prices, not higher prices. (as what is spent on oil cannot be spent on other goods and services.)
Thus it may be seen that it is only if the money supply is increased can all prices for all goods and services rise.
Therefore it may be seen that it is the increase in the volume of money which leads to inflation, not an increase in the price of any commodity, good or service.
Kind regards,
Lawbag
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Follow the link I sent you.
Rodger Malcolm Mitchell
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Hello,
Your argument is the OPPOSITE of the video presentation on stansberryresearch.com. If world leaders decide to do away with the dollar as the world’s reserve currency, and we can no longer buy oil with dollars that we print, we have to purchase the new world currency with our weak dollar, of course everything would immediately become way more expensive. Could you comment on how his argument is wrong and yours is right? Your work and his seem to be commenting on two different worlds . . . .
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Karen,
There are scores of large and small countries in this world, only one of which is widely considered to be the world’s reserve currency. Yet all of those nations buy oil with their currency. What’s the problem?
Rodger Malcolm Mitchell
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Sir:
Reading this quote (ALAN GREENSPAN: Well, first of all, the Federal Reserve is an independent agency, and that means, basically, that there is no other agency of government which can overrule actions that we take. So long as that is in place and there is no evidence that the administration or the Congress or anybody else is requesting that we do things other than what we think is the appropriate thing, then what the relationships are don’t, frankly, matter…) and your definition of MONETARY SOVEREIGNTY, I am confused. If we have to raise the debt ceiling TO HAVE MORE MONEY, ask the fed to create money out of nothing, RIDICULOUSLY pay interest on all Fed created money (in perpetuity?), tax the scheiss out of citizens, maintaining their level of broke-ness!, how can we say that WE ARE MONETARILY SOVEREIGN?
PLEASE ALSO ANSWER:
IS THE FED GOOD FOR AMERICA AND AMERICANS?
IS FED NECESSARY? DO WE HAVE AN OBLIGATION OF SOME KIND?
IS CREATING OUR MONEY LIKE ABRAHAM LINCOLN AND JACKSON DID BETTER THAN LIVING WITH FED? IF NOT, WHY NOT?
WHO ARE THE OWNERS OF THE FED?
WHERE ARE THEIR PROFITS GOING?
WHY ARE YOU NOT TALKING / WRITING ABOUT THE FED? IF YOU HAVE BEEN, AS I AM NEW TO YOUR WEBSITE, PLEASE DIRECT ME TO THE RIGHT URLs’
THANK YOU VERY MUCH.
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erk erginer,
WHY ARE YOU SHOUTING?
I don’t say much about the Fed, because the Fed really isn’t very important under today’s circumstances. The primary purpose of the Fed is to control inflation via interest rates, and today we are not experiencing uncontrolled inflation.
Our economic health is a fundamental duty of Congress, not the Fed. Yet, Congress has tossed that hot potato to the Fed by asking the Fed not only to control inflation (the Fed’s job), but also to stimulate the economy (Congress’s job).
The fact that the Fed does not have the tools to stimulate the economy does not seem to worry Congress.
The Fed is not as independent as you may think. The President can fire those boys any time he wishes.
The U.S. is Monetarily Sovereign because the U.S. government has the unlimited power (not the obligation) to create our sovereign currency, the U.S. dollar. Congress is part of the U.S. government. It has the unlimited power to create dollars, a power it may or may not choose to use.
I think some aspects of the Fed are good for America, but perhaps the more important question may be: Is Congress good for America?
Rodger Malcolm Mitchell
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“I don’t say much about the Fed, because the Fed really isn’t very important under today’s circumstances.”
“The fact that the Fed does not have the tools to stimulate the economy does not seem to worry Congress.”
This goes to show how little you know how the US money works. It is the Fed who makes money policy and authorizes the printing of money. It is the Treasury who prints real money and more importantly makes payments and collects taxes, fees, duties, etc.
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hiscross,
I don’t know what you mean by “money policy,” but if you are talking about interest rates, you are correct. As for the creation of money, Congress determines this by deficit spending. Congress also determines taxes and fees.
Under today’s circumstances (i.e. recovery from a recession) the Fed is helpless and essentially useless. It cannot create money (QE doesn’t work), and it has no device for stimulating GDP, employment or any other economic need. Congress has all that power.
Rodger Malcolm Mitchell
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I’ve read all the responses above and i don’t agree with your understanding around how the US Federal Government creates money.
When the federal government creates T-Bonds ‘out of thin air’, they must be purchased by someone to be monetized. This purchase is usually executed with ‘existing’ money from the Chinese, etc. That existing money is then temporarily out of the system until the bond expires and the money is paid back with interest. T-Bonds are a simply liability just like any other loan. They can only create as many T-Bonds as then can sell. Same as you or I can only borrow as much money as we can find willing lenders.
The Fed Gov creating T-Bonds is not creating money out of thin air, it’s just simple borrowing. The government does not have the capacity to create money. Issuing T-Bonds only leaves the taxpayers with the liability.. clearly seen by the enormous deficit.
Only when the Federal Reserve then creates money to buy T-Bonds then we have a situation where the money supply is expanding as a result.
Of course government spending (deficit’s) will create growth, but due to the nature of the governments relationship with the federal reserve i think that the US is not a sovereign nation at all.
(Flame away)..
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Matt,
Federal “borrowing” has nothing to do with federal money creation. The federal government creates money by spending, not by borrowing.
When the federal government purchases goods or services, it merely credits the checking accounts of the sellers. These credits add money to the economy. That is how the government creates dollars out of nothing.
A Monetarily Sovereign nation does not need to borrow money. It creates money. Issuing T-securities is a relic of the gold standard days: it can and should be ended, which would end federal “debt.”
Rodger Malcolm Mitchel
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Hi Rodger, thanks for your reply.
I confess your logic still eludes me. You say:
“The federal government creates money by spending, not by borrowing”
But clearly the fedeal government has to borrow in order to spend.. what am I missing here? Besides, governents always spend all that they borrow anyhow. I have never seen any evidence that the government can spend without borrowing the money first. The irrefutable proof is in the huge current deficit. All money comes into existence as debt, and unless you are the fed (or otherwise or via the money multiplier effect of fractional reserve interbank lending).. you cannot create money out of thin air and that debt has to be paid back in fiat currency. That goes for you, me and the federal government.
I admit your logic has grounds to it if the government had the power to issue, but they don’t. Only the federal reserve does.
I have never seen any evidence that the government simply credits the accounts for purchases without that being backed by funds sourced from the sale of T-bonds.
I agree with your logic that a monetary sovereign nation may not need to borrow when there are options to print away (with consequences).. but where we must agree to disagree.. that is definitely not the U.S.
At least not until they ditch the fed and resume the power of issuance.
Thanks for being such a good sport and allowing open conversation
Thanks for your insight
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Matt,
I suggest you read the post again, since you do not seem to understand the difference between Monetarily Sovereign and monetarily non-sovereign. You and I are monetarily non-sovereign, as is your city, your county and your state. The federal government is Monetarily Sovereign.
Tell me, what is the difference?
Rodger Malcolm Mitchell
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Mr. Mitchell, what do you think of the work of the American Monetary Institute and Mr. Stephen Zarlenga. If you could, please, speak to Mr. Kucinich’s (D-OH) bill to have the Federal Treasury create U.S. Dollars (rather than FRNs) and spend them into existence.
It seems to me that you share many views – but that you see it as already a present reality, while Mr. Zarlenga and Mr. Kucinich see it as something that needs to be done.
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Ed,
The American Monetary Institute is among the 1,000 organizations I don’t know. Do they understand the difference between Monetary Sovereignty and monetary non-sovereignty?
Since U.S. dollars are Federal Reserve Notes, I don’t understand the question. See my comment to Matt Soda (below), which describes the money creation process.
Rodger Malcolm Mitchell
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Sorry, I am a recovering Austrian. I am not well-versed enough in AMI’s total philosophy to articulate their arguments here. It would seem that the only difference between what you advocate and what they advocate is that they are against Fractional Reserve Banking (not credit, just the kind practiced by the FED). Other than that, in my ignorance, I would have to say that there are great similarities.
Mr. Kucinich’s bill is called NEED (National Emergency Employment Defense Act) if you’d care to look into it in order to give your perspective.
Aside from that, based on your theories of Monetary Sovereignty, what would you tell Congress and Pres. Obama to do differently if you had that opportunity?
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Hi Rodger,
Reading your blog, you message appears to be loud and clear. If I understand your message in essence..
‘Monetary Sovereign nations have the unlimited power to create their currency..’ others don’t.
That’s the core of your message right? But that’s where I have the problem.
Rodger, can you address an important question for me? what about central banks? I don’t see you ever mention how they seem to have the power of issuance. I think it’s central banks and not governments that are in control of a countries currency.
Once again, I come back to the same point. Governents can’t ‘create unlimited amounts of their own currency’ without the cooperation of their central banks.
I would much appreciate if you clearly address the issue of central banks having the power to create the money and not sovereign governments.
Cheers!
(p.s thanks for removing the last two lines of my last post, they were not meant to be there. It’s was my initial reaction, but had since changed as you are clearly such a good sport)
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Matt,
Congress and the President create a budget for every agency of the federal government. Each agency orders goods and services, based on that budget.
To pay for those goods and services, the agency sends a check or a wire or other form of instruction to each vendor’s bank.
Following those instructions, the vendor’s bank credits the vendor’s checking account. At that instant, money is created.
Then, through a series of instructions that go through various banks, including a Federal Reserve Bank, the vendor’s bank’s account is credited.
In short, while the Federal Reserve Bank is part of the money creation system, it is the federal government — or more specifically, the legislative and executive branches (Congress and the President) — that actually create the money when they authorize spending. The central banks merely function as part of the money-creation process. They do as they are told.
Additionally, all banks create money by lending, but this money is temporary. It disappears when loans are repaid. The federally-created money is permanent; it never needs to be repaid.
That is why taxes are anti-stimulus. They remove otherwise permanent money from the economy.
Rodger Malcolm Mitchell
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Ed,
Kucinich is yet another politician who does not understand Monetary Sovereignty.
If I understand his National Emergency Employment Defense Act proposal, he wants to:
1. Eliminate all lending. I don’t know why, but I suspect this would eliminate business as we know it.
2. Eliminate federal borrowing. I agree. It could be done today, simply by not creating any more T-securities. (Then he confuses everyone by saying, “No provision of this Act shall be construed as preventing the Congress from
exercising its constitutional authority to borrow money on the full faith and credit of the United States.”) Huh??
3. Change the Fed from an independent agency to a “Monetary Authority” as part of the Treasury, which is exactly what the Fed was created to overcome. And think of the politics. The Act says, “Not more than 4 of the members of the Monetary Authority may be members of the same political party.” What about independents? In a politician’s brain, there are no independents.
4. Control inflation via money supply, a functional impossibility, as witness the ongoing battles over the debt. If inflation loomed, where would you cut the money supply?
Some of what he suggests is a perversion of MMT, but altogether, the Act is a bunch of crap, which probably is why the media took it seriously.
Rodger Malcolm Mitchell
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I agree on pretty much everything here, except:
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HarPe,
“It’s slow and blunt and affects different parts of the economy differently.”
Those are exactly the problems with using taxes to fight inflation. Consider the time it would take Congress to agree on whose taxes to increase and how much to increase them. Consider the politics.
Example: If the target rate of inflation was 2% and inflation hit 4%, whose taxes would you increase and how much would you increase them?
By contrast, interest rates can be increased instantly and incrementally, something that cannot be done with taxes.
While Modern Monetary Theory agrees with you, I see no examples in history where that approach has worked. It’s total hypothesis. In fact, reducing the money supply is what causes recessions and depressions.
By contrast, the Fed has done quite well using interest rates to control inflation. So it’s historical reality vs. hypothesis, and I’ll take reality.
(I argue with Randy Wray and Warren Mosler about this all the time. It’s the point at which Monetary Sovereignty splits from MMT.)
As for automatic stabilizers, if they worked we wouldn’t have inflation.
As for ELR, I don’t see how being the Employer of Last Resort would fight inflation.
Rodger Malcolm Mitchell
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The trillians that you say the government can print to pay off debts will be worthless as they aren’t backed up by any assets. The value of US currency will be diluted to a point where the air we breathe will have more moneteary value than the green dollar. Due to the interdepedency of the global financial system, this will lead other “monetary sovereign” states who had stake in USA’s debt to collapse. In the best case scenario, the US currency will have no value and no one will have any incentive to conduct trade or any other operations with the country. But yes, the government can print unlimited amounts.
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MarkL
Welcome to the site. Obviously, you are a new reader, willing to learn. I suggest you begin at https://rodgermmitchell.wordpress.com/2010/04/06/more-thoughts-on-inflation/
It’s counter-intuitive, and not what you have been taught, but you’ll find it illuminating.
Enjoy.
Rodger Malcolm Mitchell
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Thanks, I’ll read that.
In 2008, 1 US dollar could buy 669 000 000 000 Zimbabwean dollars. Zimbabwe could print, and were printing, trillions. The thing is, their currency was of no value to anyone else, so they couldn’t borrow, couldn’t partake in global trade, couldn’t do anything. It’s like you and I declaring that we’re monetarily sovereign and start printing our own money. Who will care take us seriously? No one. That’s what will happen should governments start printing money at will and in incomprehensible amounts.
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Mark,
Zimbabwe is not a model for the U.S., (nor was pre-WWII Germany, the other hyperinflation mentioned by non-economists) Totally different set of circumstances. Zimbabwe’s was set off by Robert Mugabe and the stealing of white land, then giving it to people who didn’t know how to farm. Not even apples / oranges. More like road apples / oranges.
Printing money was an outgrowth of inflation, not the cause.
Rodger Malcolm Mitchell
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That’s not the point. USA can end up like Zimbabwe should it devalue it’s currency by printing disproportionate amount of money. Right now What will the foreign lenders do with worthless currency?
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Mark,
Don’t rely on intuition. Read the facts at: https://rodgermmitchell.wordpress.com/2010/04/06/more-thoughts-on-inflation/
Rodger Malcolm Mitchell
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Hi Roger,
Fascinating stuff. I have been reading a lot of information about how our signature is what creates money (i.e. I sign for a loan and that is what creates the money). It is also suggested that once I create the money (through my signature), that signed document is then used to create more money through securitization etc..
There is definitely a lot more about money than most people know and are ‘willing’ to be open to. I have seen people first hand use methods to eliminate their debts through the use of ‘money creation’ through the signature (i.e. turning remittances into money orders and endorsing it), but what was puzzling me was ‘why’ they were working..I kept asking myself, the government (or in these cases the IRS and the ATO (I’m an aussie)) must surely be benefiting one some way otherwise these ‘acts’ would normally see people end up in jail. But sure enough, and I have witnessed it, they work…and then someone told me, the reaosn they work is because they simply add to the debt, and now reading what you have just written, the governments don’t care that they are in debt, because they are monetarily sovereign.
Just one thing though, it;s small…you said in the article, China is monetarily sovereign, but in one of the comment boxes, you said a country that pegs to another foreign country can not be. Is China one that goes in and out of sovereignty, as they peg and unpeg from the USD?
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Dingo,
A nation that pegs its currency to anything that limits its currency creation, whether gold, the dollar et al, is for that time, monetarily non-sovereign. At this moment, the U.S. is monetarily non-sovereign. It cannot create dollars, having come up against the debt ceiling.
Rodger Malcolm Mitchell
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