Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
Shadow Government Statistics (SGS) is a popular site for those who correctly recognize that many government data are politically spun. It’s a good data resource, but when it comes to economics . . . well you be the judge. Here is a quote from the site:
The U.S. government effectively is bankrupt and remains extremely likely to resolve this ultimate sovereign insolvency by printing money to meet its obligations. As global pressures force the Fed into further Treasury debt monetization, as global confidence in the world’s reserve currency evaporates, risks remain particularly high of a U.S. hyperinflation beginning to unfold in the first-half of 2011, along with severe economic, social and political consequences that will follow. The outside timing for this manmade financial catastrophe remains 2014.
Let’s analyze this:
“The U.S.governemtn effectively is bankrupt . . . “ What does that mean? A bankrupt entity cannot pay its bills; the U.S. can. . . endlessly.
“. . . and remains extremely likely to resolve this ultimate sovereign insolvency by printing money to meet its obligations.” If by “printing money” SGS means crediting the bank accounts of its creditors, yes, that’s the way a Monetarily Sovereign government pays its bills. Always has; always will. If the government didn’t “print” dollars, there would be no dollars.
Then we get into hyperinflation, scheduled by SGS to begin the first half of this year and no later than 2014. Let’s call this the Harold Camping syndrome – the foolish attempt to date a catastrophy prediction without giving yourself a “out.” At least when I recently predicted a “full blown depression for 2012, I included the caveat, “Based on where Obama and the Tea/Republicans are headed. . . “ which at the time was toward a $4 trillion deficit reduction, which unquestionably would cause a depression. Clever me. I gave myself an “out.”
But John Williams, the author of SGS offers no caveat. He just flat-out predicts hyperinflation, which the U.S. never has had, through wars, depressions, recessions, stagflations and every other economic crisis. Hyperinflations always are caused by specific and unique circumstances, and are not merely inflations on steroids. Today, we are worried about deflation, while having the absolute power to prevent even inflation, via interest rate control.
No, hyperinflation is the least of our worries — somewhere at the danger level of being destroyed by a huge meteor. The “most” of our worries: Recession and depression, which either are existent or imminent, depending on how you define them. Oddly, debt hawks continue to fret about the least of our worries, while ignoring the “most” of our worries. Just can’t figure those strange people.
So add Shadow Government Statistics and John Williams to the long list of people and institutions that display zero understanding of Monetary Sovereignty.
Rodger Malcolm Mitchell
No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia.
15 thoughts on “–Ignorance on every side. Et tu Shadow Government Statistics?”
Not to be a pain or try and play gotcha but you seem to be a bit inconstant. Maybe your just trying to make a point or maybe I misunderstand or am being a bit too picky but it goes back to a post I made a few days ago about inflation.
In this post you mention that the US can pay its bills endlessly, that we can just add zeros to peoples accounts yet elsewhere you said there is limit to how much money can be created, how many zeros we can add to peoples accounts and that limit is inflation ie..what you would call hyperinflation.
So does inflation limit how much money we can print or create?? Also if that is the case have you thought at all or do you know how much money we can currently create without having inflation..how many zeros can we add to peoples account before monetary inflation hits…that is a dollar amount, one or two trillion??
Also I have been thinking about countries that have used fiat currency (monetary Sovereign) and I am wondering if you know of any where the currency has survived more than 50-100 yrs??
Right now most countries are on a fiat currency many are monetary sovereign a lot of are not but most have only been so for maybe 40+ yrs which is true of the U.S. When I think of countries in the past who have been monetary sovereign and have used fiat currency I cannot think of any of whose currency have lasted that long. More recently Zimbabwe and Argentina or going back a little bit France’s several experiments with fiat currency in the 1700’s or even early colonial America in the 1600’s to early 1700’s and even going back a few thousand years to the Roman Empire even though they used gold when they started debasing their currency that is when their empire started to collapse.
So I was just wondering if you have any examples where it did work out, I cannot think of one??
Steve, I think you may be the straw that sends me to a much-needed vacation. 🙂
I have said again and again and again: The only limit on federal deficit spending is inflation. If you see a contradiction in that statement, please keep it to yourself. I don’t have the strength to explain it yet again. After 15 years of trying to explain it to knuckle-headed debt-hawks, let alone to normal human beings, I’m beat.
As to how much deficit spending would cause inflation, I discuss that a bit at SUMMARY. There are many factors involved in inflation, including money supply, interest rates, productivity, trade balance, population growth and on and on. No one can predict the inflationary effect of any one factor.
The U.S. has been Monetarily Sovereign since 1971, 40 years. We have been using a fiat currency since 1776, 215 years. I have no idea what you mean by “work out.” We still are going, aren’t we?
Rodger Malcolm Mitchell
I understand it as whilst there is no technical limit to the number of dollars that can be created, inflation places a limit to the number of dollars that can sensibly be created, it’s telling you that you are butting up against real resource constraints, and that further spending won’t help unless it’s directed to expanding those constraints.
PS. here’s a nice little graph of the US inflation rate since 1914 one notable thing about it is how volatile, and how high, it could be under a gold standard, not exactly the characteristics most gold bugs try to credit a gold standard with.
It was seeing a graph like this a year or two ago that convinced me that a gold standard was no panacea, that your typical gold bug was just a crank, and helped turn me right off Austrian style economics, as I could see they were essentially a bunch of puritanical idealogues. http://en.wikipedia.org/wiki/File:US_Historical_Inflation.svg
I do see a contradiction in what you are saying …sending you to vacation may not be a bad thing depending on where you go to relax but making you crazy is not good so I will not go further with that…
However We have not been using fiat currency since 1776..it has been on and off as when we went off the gold standard during the civil war and then we went right back on a gold standard but we have not been using fiat currency since 1776 or I am not sure what your definition of fiat currency is.
What I mean by “working out” is having the currency collapse as in what happened to all those countries… do you know of one country that used fiat currency and was monetary sovereign ie..where the currency did not collapse??
There are several kinds of gold standards, but the one with which you may be most familiar, and which is what the U.S. had prior to 1971, is a gold bullion standard, in which currency is valued at a certain weight of gold.
That valuation is done by government fiat and the currency is fiat currency. So fiat currency is part of, not a substitute for, a gold standard.
I suspect the point you want to make is that in some way, gold is safer than a fiat currency, or even that a gold standard is safer than Monetary Sovereignty, and this absolutely, positively is not historically true. Every depression in U.S. history came when we were on some sort of gold standard and not Monetarily Sovereign.
Every recession came when we acted as though we were not Monetarily Sovereign, by restricting money growth.
Being on a gold standard actually makes our financial position more precarious, as it limits the government’s ability to stimulate the economy or pay its bills. It is very similar to the position in which the debt ceiling now places us. In effect, we are on a “debt ceiling” standard, unable to stimulate the economy or pay our bills.
Rodger Malcolm Mitchell
The gold standards that we were on shifted some over time. Brenton Woods Obviously was different than what we were on prior to WW1 and in the periods where there were no central banks.
What I am referring to here is the fact that the ratio was unusually fixed, that the currency ie..dollars were convertible (unless actual gold/silver coins were used in which case they were usually debased by putting in less gold/siver) which limited the amount that could be “created”. If too many dollars were printed and the value became devalued people could exchange them for gold which is what led us to finally end the gold in 1971. This is not fiat currency.
With a fiat currency it is not backed by gold/silver, it is not backed by anything, there is nothing to covert, there is no natural limitation to how much can be printed except for what the government dictates or sets as the amount..ie what you call Monetary Sovereignty.
Also do you realize by standard measurements the purchasing power of the dollar was about the same in 1800 as it was in 1900 that is it could purchase about the same amount of goods??
So we may be using different terms but there is a difference between fiat money and a gold standard and what we were on prior to 1971 was much different than what we are on today.
Considering that I was trying to figure out if there was ever a currency that was a fiat currency or monetary sovereign which survived more than 50 to 100 years..I cannot think of any..I can think of a number that were not fiat and lasted a long time but I cannot think of any that were and lasted a long time. So I was curious if you knew of any??
The Song dynasty used fiat currency, which as I recall lasted about 500 years, which is totally irrelevant to anything — but you asked, presumably to make a point about the gold standard — you know, the gold standard that was in place when the Great Depression began.
Rodger Malcolm Mitchell
By the way, Steve, you say that fiat money is not backed by anything, which is incorrect. It is backed by the full faith and credit of the United States. Now tell me, what backs gold?
Rodger Malcolm Mitchell
Wait..what does the full faith and credit of the united states mean??
All that means is peoples confidence in the US. Or in traditional terms the us taxpayer..but Once the confidence is shattered the game is up…or did you mean something else…
What exactly does that meant??
Also What I meant was dollars could be redeemed for gold..it is backed by gold….if the value of starts to get devalued I can get out…
So what can I redeem the dollars in my pocket for or the zeros in my account for..anything ???
Under a gold standard a person had a way out if the money was being devalued I could get out..now I cannot..I am trapped…unless I leave the country or buy gold…!
And the great depression occurred because there was too much credit expansion, it occurred because the government was managing the money…they are managing the money today so…
As to why I ask…yes and no to making a point…No because I cannot think of any currency that lasted that long on a fiat system while I can name a number that lasted on a gold standard so it does seem that gold is more stable although not perfect..so I was curious if there were any…and yes to a degree I was trying to make a point that a gold standard currency does seem to be more stable since there are more examples so ultimately I was curious if there were any counter examples.
Thanks by the way for mentioning china I will look into it.
Also not sure why you would suggest it is irrelevant?? Why would it be irrelevant??
If a country that used fiat currency in the past did not fair well then what makes us different, what make you think we would turn out different and isn’t there something we could learn from their experience?? So yes it is relevant I really don’t see how you can say it is not relevant !!
In addition to my other comments let me answer your question on what backs gold..and the honest answer is nothing backs gold!!
But is asking what backs gold the right question??
I can say that under the Breton Woods gold standard gold back dollars because it did…I could exchange my dollars for gold therefore it was not fiat even though the government set ratio of how many dollars = an ounce of gold.
So what backs gold..nothing..so why would gold back dollars??…the same as why people accept dollars today..they have confidence in it but they have confidence in it for very different reasons!!!!
Unlike dollars..gold is a commodity..it has worth or value in and of itself…..that is it is useful..it is useful in jewelery and in other limited commercial applications. Just like a screw driver is useful and people recognize it is useful and I can buy and sell a screw driver with confidence because I know it is recognized as being useful. The screw driver may not be worth a whole lot because someone with the know how can produce millions of these but it is still worth something…the same with gold but it is worth much more than a screwdriver of its properties ie..it is not easily destroyed or created or counterfeited.
It is these qualities that give gold its value. Outside of the money we know it as what qualities do today’s money ie..dollar bills, five dollar bills or electronic zero’s in ones bank account have??
Today’s fiat money really doesn’t have any…you really cannot use it for anything and once the one, five or twenty with the pretty designs are put on it you can’t even really use it as regular paper the only thing you can really do with it is burn it.
The only reason it has any value is because the government tells us it does, it forces us to give it value. If we don’t accept it we are out of luck. We are forced to use it under threat.. think of what would happen if you tried to create your own money… you would go to jail!!!
It is because the goverment tells us so that people have any confidence in today’s money…once they loose confidence then the games up.
With gold however nothing may actually be backing it but it has value without the government telling us it has value…
But this is all getting way off track…, I was originally pointing out the gold standard we were on was not fiat..that the currency was backed by gold….
Steve, this will be my last communication with you, because I am worn out answering questions I have answered repeatedly in this blog. At: https://rodgermmitchell.wordpress.com/2011/06/20/why-a-dollar-bill-is-not-a-dollar-and-other-economic-craziness/ you will see that “full faith and credit is not just people having confidence.
Also, if the backing of gold relied on its utility, gold would be worth about $1 a pound. The fact is, the holder of gold is in much greater danger than the holder of a dollar. The federal government makes all the above guarantees regarding the dollar, but nobody backs gold.
However, if you feel safer owning gold than owning dollars, by all means, trade your dollars for gold.
Rodger Malcolm Mitchell
I think Steve and others have a notion that a gold standard or gold backing is somehow a neutral state of affairs because it appears un-managed. Nothing could be further from the truth.
There is no such neutral system. Every system must be managed.
If the government steps out of the picture by annointing some commodity to act as money, those controlling the largest amount of that commodity become the de facto managers. The government would further enrich the managers by borrowing that commodity to fund its own initiatives.
I don’t know what you’d call a government that did that, but you couldn’t call it a democracy.
Actually Jeff I don’t really have that notion at all..as you said it is all managed but who is actually doing the managing is part of the question and is money a result of growth or is money responsible for growth and what are the limits to that growth and how does that growth in the money supply effect purchasing power??
What I am saying is that with commodity backed money there are natural limits to how much it can be managed and its connection to the actual economy and part of that limit is the actions of the economy as a whole vs a couple of people setting policy or punching numbers in a computer…
“…with commodity backed money there are natural limits to how much it can be managed…”
You have just proved my point.