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●The more federal budgets are cut and taxes increased, the weaker an economy becomes.
●Austerity is the government’s method for widening the gap between rich and poor, which ultimately leads to civil disorder.
●Until the 99% understand the need for federal deficits, the upper 1% will rule.
●To survive long term, a monetarily non-sovereign government must have a positive balance of payments.
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
●The penalty for ignorance is slavery.
●Everything in economics devolves to motive.
Our police state loves wars and crises, especially wars that never can be won and crises that never can be resolved.
Wars and crises provide the upper .1% power group with the excuses to take away the liberties of the lower 99.9%, thus legitimizing the widening of the power gap.
Consider the war on terror. There always will be at least one terrorist or potential terrorist out there, at least one person who either hates the United States or hates the President or hates Congess or hates the government or simply is nuts.
And even if my some miraculous means, we were able to eliminate all those haters and nuts, just the possibility that a new one might be born, is sufficient to maintain the never-ending war on terrorism. This eternal war justifies the excesses of the NSA, FBI, CIA et al, not to mention local police excesses, “stop-and-frisk,” airport security and assorted other intrusions into your privacy — none of which pester the upper .1%.
The war on drugs is another endless war that provides the .1% with excuses to harass, prosecute and incarcerate vast numbers of the 99.9%, while giving a free pass to the .1%.
Which brings us to the real subject of this post: The so-called, endless “debt crisis.”
What exactly is the “debt crisis”? No one knows, though you will see and hear that phrase every day, liberally sprinkled throughout the news and commentary.
Look through today’s paper or this week’s magazine, and whenever you see the phrase “debt crisis,” note to yourself that the author either is economically ignorant or a liar on behalf of the .1%. It is a defining phrase.
But what is the “debt crisis”? For the extreme liars, it means any debt (i.e. outstanding Treasury Security) is too much. So if the total federal “debt” were $1, the extreme liars would consider that we still are in a “debt crisis.”
I even have seen statements that the U.S. federal government should run a surplus, so there would be “enough funds for future spending,” as though the government’s finance were like yours and mine.
For the ignorant and the less-extreme liars, “debt crisis” means today’s federal debt, whatever that debt might be. This blog contains several posts regarding our so-called “unsustainable debt” (the prelude to the “debt crisis”) showing how examples of this phrase began in 1940 or earlier — almost 75 years ago!
Today, the “debt” still is “unsustainable,” still in “crisis,” and the upper .1% still is doing everything possible to increase the power gap.
The reason: Enough never is enough. Although the GINI ratio (a measure of the gap between the rich and the rest) continues to grow, no gap ever will sufficient for the rich. They want to beat the 99.9% down, down, ever down.
And they do it by convincing every level of the 99.9% that those residing in levels below them are slackers and takers.
Think of it: The vast majority of ultra-conservative voters are part of the lower 99.9%, voting against their own well-being. What a remarkable brainwashing job, the .1% have done.
Of course, there is no “debt crisis,” a manufactured “crisis” that could end tomorrow with the simple expedient of not issuing any more T-securities. Even the existing T-securities could be made to disappear, by the other simple expedient of debiting T-security accounts and crediting checking accounts. That could be done tomorrow, without creating any new money.
There are, in fact, just two debt crises, and neither has anything to do with federal debt. One is the crisis of consumer debt, forced on the ignorant, who have been made to believe it is better for a Monetarily Sovereign government to run a surplus than for the economy to run a surplus. (“The government needs my dollars more than I do.”)
The other debt crisis is the shameful, unnecessary student debt crisis, about which I will post in the future.
Rodger Malcolm Mitchell
Nine Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Federally funded Medicare — parts A, B & D plus long term nursing care — for everyone (Click here)
3. Provide an Economic Bonus to every man, woman and child in America, and/or every state a per capita Economic Bonus. (Click here) Or institute a reverse income tax.
4. Free education (including post-grad) for everyone. Click here
5. Salary for attending school (Click here)
6. Eliminate corporate taxes (Click here)
7. Increase the standard income tax deduction annually
8. Increase federal spending on the myriad initiatives that benefit America’s 99% (Click here)
9. Federal ownership of all banks (Click here)
10 Steps to Economic Misery: (Click here:)
1. Maintain or increase the FICA tax..
2. Spread the myth Social Security, Medicare and the U.S. government are insolvent.
3. Cut federal employment in the military, post office, other federal agencies.
4. Broaden the income tax base so more lower income people will pay.
5. Cut financial assistance to the states.
6. Spread the myth federal taxes pay for federal spending.
7. Allow banks to trade for their own accounts; save them when their investments go sour.
8. Never prosecute any banker for criminal activity.
9. Nominate arch conservatives to the Supreme Court.
10. Reduce the federal deficit and debt
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.
Two key equations in economics:
1. Federal Deficits – Net Imports = Net Private Savings
2. Gross Domestic Product = Federal Spending + Private Investment and Consumption – Net Imports
THE RECESSION CLOCK
As the federal deficit growth lines drop, we approach recession, which will be cured only when the lines rise. Federal deficit growth is absolutely, positively necessary for economic growth. Period.
61 thoughts on “–Our debt crisis and our endless wars”
“Even the existing T-securities could be made to disappear, by the other simple expedient of debiting T-security accounts and crediting checking accounts. That could be done tomorrow, without creating any new money.”
Would you please explain the practical consequences of doing that? How would M1, M2, M3, etc., change and what would be the practical consequences? Psychology aside (or maybe not)?
Part of the answer relates to the multiple official measures of the money supply, none of which is comprehensive, and all of which are arbitrary and subjective.
M1, M2 and M3 would increase massively, as checking accounts are credited. There are no “M’s” that correspond with deposits in the FRB.
Ironically, the best measure of the money supply (IMO) is: Federal Debt Held By The Public, which the St. Louis Federal Reserve calls: FYGFDPUN.
The US has the biggest bond market in the world – hands down. It trades over 800 billion (Yes, Billions) a day.
Here is what I think would happen if the government “pays off” this debt. The bond holders have lent these funds to the government – and currently do not have access to the funds. They get paid interest on a scheduled basis.
Since the government does not have any money outside tax and bond receipts – the government would be effectively creating the money out of thin air. The money would also be debt free. That action would result in a shark increase in the current money supply – which stands at around 3 trillion. The funds would chase other assets (I don’t know which), but the end result would be huge price spikes (hyperinflation) – probably across the board. Another depression in no time.
The difference between the US economy and that of countries like Argentina and Venezuela is the depth of the credit markets. Paying off these treasuries would be the worst mistake in human history.
My 2 cents.
Depends what you mean by access. Have you ever bought a T-bill? Have you ever sold a T-bill? That kind of access?
Do you have a savings account? A T-bill account at the Federal Reserve Bank is very much like a bank savings account. Have you ever withdrawn from your savings account? That kind of access?
” . . . the government does not have any money outside tax and bond receipts – the government would be effectively creating the money out of thin air. . . “
In fact, the government has no money at all, and always creates dollars “out of thin air” by paying bills. You really should try to familiarize yourself with
Monetary Sovereignty, because you are quoting from those who do not understand Monetary Sovereignty.
As long as you are going to submit to a blog titled, “Monetary Sovereignty,” you might as well learn the differences between Monetary Sovereignty and monetary non-sovereignty.
I don’t disagree that a T-bill is like a savings account – in fact, I agree 100% with that. On that thought, what do you think the banks do with the funds they get from savings accounts? Don’t they lend it out?
No, you can’t withdraw from your savings accounts, like bond holders can’t withdraw from savings accounts. But if the government “pays” the bonds off, of course they would be able to withdraw. What would you call a bank paying me and you the same funds?
I know what a sovereign nation is – and I agree that each nation should never relinquish the money issuing authority to another nation. However, aside from Germany in the 1920s, I haven’t seen any nation that has destroyed itself because of lack of money. I have seen many do it by creating too much money.
Yes banks lend money by creating the money they lend. They do not lend the money in your savings account. </b.
It simply stays there. Or have you noticed a diminishing of your savings account balance lately? No? Why not?
I'm not talking about a "sovereign nation." France, Italy, Greece et al are sovereign nations. However, they are not Monetarily Sovereign. You should try to learn the difference before commenting further.
Would you comment on a website devoted to quantum mechanics without understanding quantum mechanics? It's odd that you feel you can simply toss in your intuitive ideas, and even argue that they are right. What makes your intuition better than facts?
And you haven't noticed any nation destroying itself for lack of money? Really? Every depression in U.S. history was caused by a reduction in money supply growth. Same for nearly all recessions.
Then we came out of all depressions and recessions by increasing the growth of the money supply.
The recent Great Recession was caused by a sudden drop in the money supply.
Learn before speculating.
Banks pay interest on savings accounts because they are earning more interest than they pay – otherwise they would not take the money. It is the nature of the business.
Banks don’t lend money into existence – that’s a myth. Money does get created by bank lending – but not by lending it into existence. Since we are on a fractional reserve system – the banks can lend up to 90% of what the get on deposits (savings accounts). So say bank A lends bank B 100,000. Bank B keeps 10,000 on reserve and lends 90,000 to bank C. Bank C keeps 9,000 and lends 81,000. So again – the same money is re-lent times over.
Stopping there – 271,000 have already been created out of thin air. That is the main issue we are facing today – it’s fraud – and it’s currently allowed. That is not possible on a pure gold standard (which ended in 1913 in the US).
Your math and conclusions are wrong, but I’ve given up trying to teach you anything.
Can you please take your ignorance somewhere else?
The accounting is not that difficult.
You walk into the bank for a home loan, they give it to you, here’s the accounting:
Borrower’s demand deposit account (asset for borrower and liability for the bank) +100,000
Borrower’s promissory note (liability for the borrower and asset for the bank) +100,000
Please show me where the debit is in this process.
If the bank is lending out someone else’s deposits, then we would be able to see the debit. This is so basic and simple. How can you not understand this?
To fund the nostro account, the bank would debit all savings accounts and also sweeps (debits) checking accounts. The banks pay out interest for the right to do so and it’s the reason you cannot withdraw on demand. Finally, the bank’s internal nostro account gets debited and the funds are credited to the seller’s bank account (via the Fed).
A bank cannot initiate a payment without first debiting an account, that’s a proof break. Let’s just say I talk to various people that work in the banking industry.
You don’t know anything. You are truly delusional.
There are no debits, and both regular checking and savings accounts at banks are on-demand deposits so you are 100% wrong about that too. Go away!
There are two sides of the accounting coin to look at here. On the one hand, the $17 trillion in securities accounts at the Fed will be transferred to reserve accounts, increasing the amount of reserves at the Fed by $17 trillion.
But also, the owners of those T-bonds would get their own bank deposits back with which they purchased the T-bonds originally, 97% of all T-bonds are owned by non-banks.
Like Rodger, I prefer to look at the level of outstanding debt as a better measure of the money supply instead of the various M measures. Although I disagree with Rodger that Federal Debt is a good measure of the money supply since technically, all T-bonds not owned by financial institutions are bought with bank deposits that originated as private debt. For that reason we actually need to subtract the number of T-bonds from the nominal level of private debt to arrive at an approximation of the level of “money” in the economy
IS THIS THE END OF THE GOLDEN AGE?
On 4 March 2014 Obama will release his proposed federal budget for FY 2015. The budget will be published as a book. Thousands of copies will be printed and sent to every Congressman and to many other parties. Congress will have seven months to review it and change it.
Interestingly, Obama’s proposed budget will not include the “chained CPI” cuts to Social Security.
This enrages the right-wing media outlets like Fox News, which — like children throwing tantrums — now claim that we have never had austerity with Obama, since the federal budget has never had a surplus, or even been in balance. (And even if the budget were to have a surplus, this would be a good thing. Therefore it would not be austerity.)
They whine that the Obama administration (that is, the Congress with a Republican-controlled House) spends about $3.5 trillion a year. Fox News says, “The Greeks would love to get some austerity like that.” (As though the USA and Greece are comparable.)
Of course, Fox News would scream if we eliminated $700 billion per year for military contractors, plus the additional “off-budget” billions for the USA’s ongoing wars, plus the additional trillions in ongoing spending for Wall Street bail-outs.
The Washington Post is weeping. It says that because Obama’s proposed budget does not include cuts to Social Security, “Obama will call for an end to the era of austerity.” It says that Obama has betrayed America by reneging on his “grand bargain” to cut “entitlements.”
The Post also whines that Obama was “never serious about addressing the nation’s long-term debt problems.” Here the right wing is correct, except that they have the wrong debt. The US government’s “debt” is trivial, and can be retired instantly and effortlessly. Indeed, it is only a “debt” when looked at one way.
However, private debt (e.g. student loans) is disastrous. Republicans LOVE this debt, since it widens the gap between the rich and the rest. Obama has done nothing about it. So yes, Obama was “never serious about addressing the nation’s long-term debt problems.” (The REAL debt problems, not the fake ones.)
No cuts to Social Security? Average people no longer obsessed with the “deficit crisis” and “national debt crisis”? Is this the end of the Golden Age of Deficit Reduction?
Austerity continues. The deficit for FY 2014 will be only $514 billion, and is expected to continue falling to $478 billion in FY 2015. Furthermore, Republicans in Congress will change Obama’s budget, demanding more cuts to social programs.
By the way, Obama’s proposed budget will require “wealthy seniors” to pay more for Medicare benefits than they do now. I haven’t seen the budget, so I don’t know what Obama considers “wealthy.” (Probably anyone who has more than ten dollars in his bank account.)
Obama says the reason his proposed budget does not include cuts to Social Security is that Republicans would not agree to “paying for” any cuts by closing tax loopholes for the rich.
This brings up a factor for all you people who say there is “no proof” that the 1% pay politicians to impose austerity and to maintain the Big Lie.
Republicans want to cut social programs, and to widen the gap between the rich and the rest, but even stronger is their desire to spare the rich from paying taxes. Reduced social programs cause a gradual increase in inequality, but tax increases are an immediate confiscation of money.
Therefore Republicans demjand cuts to “entitlements,” but they always give way, at least to some degree. However Republicans never give way when it comes to tax increases on the rich. They will not budge.
Reason: Republicans know that social programs cost nothing (since the US government creates its spending money from thin air), but taxes take money directly from the rich. So, when it comes to a choice between cutting social programs and paying higher taxes, Republicans always surrender some ground on the social programs, but refuse to consider higher taxes on the rich.
This is the downside of the Big Lie. It is the “other edge of the sword.” If you falsely claim that federal finances are the same as personal finances, and that taxes pay for the federal government, then you must agree to higher taxes if you want cuts in social programs. Obama is using this against the Republicans.
The 99% go the other way. They will give some ground in their calls to increase taxes on the rich, but they refuse to accept cuts to their Social Security or Medicare. Increased taxes on the rich cause a (perceived) gradual decrease in inequality, but cuts in social programs are an immediate confiscation of money.
Understanding Monetary Sovereignty and that the debt crisis was fictional could have saved municipalities billions. The above link shows how many cities and states entered in swaps costing hundreds of millions of dollars. They entered these swaps to protect themselves from rising interest rates. Apparently the municipalities were frightened that that the Federal Govt would default and interest rates would soar. After all, S&P downgraded the US debt.
If those municipalities knew that there was a 0% chance of an involuntary US default, would they have entered in the swaps? How about if they knew that there was no historical correlation between increased deficits and higher interest rates? How about if they knew QE was deflationary?
Not to worry. The article notes that Wall Street allowed New York State to cancel its swaps for a termination fee of $243 million. Good Grief.
No, the credit markets were shut and the munis were hungry for money. It always boils down to political thugs hungry to stay in power by making everyone happy. The hope is that dam will break after they leave.
it seems to be working nicely, the fools are blaming everyone but them.
Rodger: How do you know that the economy can adsorb more dollars? How do you determine the upper limit of circulating dollars without having too much inflation? With respect to nine steps, if these steps were implemented now, such as providing dollars to citizens for medicare, school tuition, national income, etc., how do you know that this creation and distribution of new, additional dollars in the economy wouldn’t spark increased inflation or hyperinflation? Is there some kind of formula to follow?
I don’t know, any more than the debt hawks know how much austerity will lead to recession. As I often have said, economics is complex, and there are very few mathematical correlations.
However, I do know this:
–A large economy has more money than does a smaller economy. Therefore, a growing economy requires a growing money supply.
–Every depression in U.S. history, and most recessions, have been introduced by several years of reduced money growth.
–Every depression and recession in U.S. history has been cured by increased money growth.
–If inflation arises, the Fed cures it by raising interest rates.
Its not that complicated:
If unemployment is too high => the deficit is too small
If inflation is too high => the deficit MAY be too big
Is Bernanke this bad as they are saying? Is this true, or is the media misinterpreting?
All Fed chairmen and women know the truth, at least by the time they leave they do.
For instance, Greenspan was hailed as hero before he left – a little bit later – he was considered a bubble blower (more accurately).
Bernanke is currently hailed as the savior of the world – yet the man has managed to blow the biggest bubble in the world – and for what? – to bail out bankers and stupid decisions. It won’t be too long before Bernanke is considered the worst chairman in history.
Not that there could be a “good” chairman anyway. By design – the Fed is a market manipulator – and as a result – all Fed chairman’s are – well – manipulators and anti-free markets. How likely is it that these men and women will shut down their own jobs for the good of humanity? Never….
Why is gold or silver not considered money?
Why is aluminum or copper not considered money?
That’s a good question. Technically you can use anything as currency. Cattle and (you would never believe) shells were once used as currency. Shells actually have the longest duration as a currency. The following are the qualities a currency should have:
– It must be a store of value, and value should be stable over time.
– It must be a medium of exchange, people must accept it for goods and services.
– It should be self verifiable – i should be able to tell the difference between real money and fake
Why are gold and silver not considered money? My answer: To whom are they not considered money. To me gold and silver are money – and will be for the unforeseeable future. I can change gold for goods and services any time I want.
You see – money is what people and businesses decide. And both gold and silver have the qualities I mentioned above. For now people and businesses continue to pick dollars as the domestic and global currency.
” I can change gold for goods and services any time I want.”
Please let me know the next time you take a bar of gold to the grocery store or a car dealership, to make a purchase.
Also, let me know the next time you take an ingot of aluminum or copper to the above stores, to make a purchase.
Then let me know how these experiences differed.
Not by much really.
Most people have their gold in storage and liquidating them is a piece of cake. Since the government forces businesses to use dollars, just like Venezuela does, i’d have to trade it for dollars for a few hours. I would then take the dollars and trade it for the car – done.
Get this – the government considers taking gold for goods and services as “fraud”. Interesting, what do you call lending the same money over and over, and borrowing money into existence. Heck, even if the government printed the dollars into existence – is that not fraud? It is to me and I know it is to you as well Rodger.
We may never become Venezuela, but it won’t be too long before the people in Venezuela enforce their chosen currency onto the government – whether the government likes it or not.
Then you believe that aluminum, copper and indeed every commodity that can be bought and sold, is money? Never mind.
Also, consider that when you sell part of your gold hoard, you have to pay a 28% capital gains tax rate:
Why do you think creating money is theft, fraud and immoral? Someone has to create the money thats needed to compensate for our ever increasing population and productivity. In the USA, that power was given exclusively to The People through our Congress:
Article 1 Section 8:
Congress shall have the power to……..coin money and regulate the value thereof.
Why do right wingers hate democracy so much? Why would we want to be dependent on third world nations and mining companies CEO’s to control our money supply instead of operate our current system of Monetary Sovereignty where We The People are in charge of our own money?
I think creating money is fraud? You and everyone on this board thinks the same too. Unless you feel that someone making a machine to mint dollars is legal too.
It’s good that you mention article 1 section 8, on that thought – why don’t you take a peak at article 1, section 10, clause 1 – where it clearly states that gold and silver are to be used as tender in payment of debt. Nope, that part you will continue to ignore because it doesn’t fit on the communist play book – does it?
So it’s not the “right wingers” that are undemocratic – it’s the lefties.
(The format here will not let me reply to sucesofinanciero directly, but why would anyone want to anyway?)
Laws must be understood considering the circumstances within which they were written. In 1787, when Article 1, Section 10 was ratified, there was no federal central bank and no federal paper money. The only power the federal government had under Section 8 was “to coin money” with no restriction as to metal type.
Because of this, and because of the fact that only STATE banking corporations were issuing paper money, Section 10 is clearly not speaking to the federal gov’t, but rather telling all 13 states that the federal gov’t will have power to stop or control STATE issuance of paper money.
Again, Section 10 cannot be construed so as to limit, or control in any way, federal money-creation powers given to it under Section 8, so Congress is not required to include gold or silver coins in a current circulation.
Thanks for proving my point Steve. As I said, liberals pick what they like from the constitution and discard what they dont. This nation got to where it got pretty much because of gold, it’s been in decline ever since dropping it.
This is Rodger’s forum, not yours.
Was that before or after the Great Depression?
We both know the gold standard ended with the implementation of fractional reserve. Blame the excessive run up in credit on the 1920s and a foolish fed trying to stop the inflow of gold for that.
it’s kind of blaming vomiting and headaches on the hangover. Blame it on the cool aid drinking Rodger. A gold standard does not support excessive credit creation.
The fed and fractional reserve were implemented in 1913.
“A gold standard does not support excessive credit creation.”
Correct. A gold standard supports insufficient credit (i.e. money) creation
@ Newbie: Gold is not money; it is a commodity. If I trade a bar of gold for something, then this is barter, not a monetary purchase.
Gold has never been money. Occasionally in the past, gold coins have been used as currency, but currency is not money. Currency represents money. Money itself has never been physical. It has always existed purely as account notations in bank ledgers, or in some other type of ledger.
In a sports game, points are not physical, although points can be represented on a scoreboard.
Likewise, money is not physical, although money can be represented by currency, and by notations in a bank account.
Since money is not physical, a Monetarily Sovereign government can never “run out” of money. (Can a football scoreboard “run out” of points?)
A Monetarily Sovereign government does not borrow its spending money from anyone. (Does a football scoreboard “borrow points”?)
No program in a MS government is “unsustainable.” (Can putting points on a football scoreboard be “unsustainable”?)
If a person wants a “gold standard,” or if he claims that gold is “money,” then he does not understand that money is not physical, and never has been.
As Rodger says, “No one has ever seen a dollar.”
Could this work?:
Bernard Lietaer proposes that communities can benefit from creating their own local or complementary currency, which circulate parallel with national currencies.
“A competitive private market for money, instead of an arbitrary government monopoly amounting to a license to steal for the ruling class? How could that ever work?”
@Newbie, I understand that there have been many successful applications of communities creating and using a local currency, especially during times of monetary crisis, but there are many problems, not the least of which is counterfeiting. So my uneducated OPINION, is that, considering that it has never caught on over time, it could only work in theory.
Wonderful!, Understanding monetary sovereignty is great, you get to walk around frustrated with a smug look on your face . Sort of like living in the middle ages, before Copernicus figured out his heliocentric model, rationally explaining retrograde motion and varying brightness of the planets. It still took a hundred years after his death before the enlightenment got going, and i am sure many intelligent people were aware of the insanity. Today we have the advantages of incredible technological advancements in communication, and still the majority view takes precedent. Viewpoints dont change until the leaders take notice, we’re really herd animals.
Rodger, please help, how does one “monetize” this information? You wrote a book and manage a blog, awesome, bet it costs you way more than you net. In the society we live in, unless you’ve succeeded in branding yourself ,which is like a small printing license, earning money is extremely hard . Because of inherent economic instability, which of course could have been averted if the government and its constituents understood some of the concepts you raise, I am now broke. Worked hard for twenty five years,invested in real estate and stocks,and owned a small business, all came tumbling down in 2008. Our credit monitoring and collection businesses are first rate, very unlikely i can ever get back where i was without incredible luck. Sure i understand about economists creative destruction theories, but in the last 25 years we experienced 3 major set backs. No wonder wealth disparity increased. We are doing this to ourselves. The crazy evangelicals make a fortune preaching illogical rants of hope. Surely one can both enlighten rationally and earn an honest dollar. But how? I cant get the resources needed to go back to school and earn a doctorate in economics. Of course being indoctrinated by a bunch of bunk on the way.
The dunce cap is sometimes better left on, than you dont know that it doesnt have to be this way, and maybe you can blame yourself easier ,accepting the consequences. How does this illuminating information help, if perception is reality, and time isnt on our side. Sure one can short the market,but timing it turns it into a gamble. Any ideas, much obliged.
You may think you are broke, but the politicians, the media and the economists keep telling you it is the federal government that is broke. So you need to send them your money, in the form of taxes and reduced federal benefits.
So pity the Monetarily Sovereign federal government, which magically has run out of dollars, while you have an excess of dollars.
Don’t be so selfish. Send the government more of your dollars and expect to receive fewer dollars from them.
That’s the message of the right-wing debt- nuts who complain about the mythical federal debt and don’t give a damn about your real debt.
John Williams of shadowstats.com says that we’re going to get hyperinflation this year:
How likely is it that this will happen?
If his definition of hyperinflation is about 3% a year, maybe. But if he uses the usual definition of 50%per month,. the odds are similar to him being hit in the head by a meteor (unless he already has been).
Unless MMT or MS are implemented by the government. In that case, the chances would be closer to 100%.
@sucesfinanciero: I do not understand how the chances would be closer to 100%? MMT and MS already functionally describes the present monetary system that we have – It’s already being implemented by the government. What is not being implemented (willfully by some) is how to use this system. It’s like they’re using an instruction manual for operating a 1970’s 8-track player in trying to use an iPod: The current understanding and way of management of our monetary system just doesn’t apply.
I meant implement the ideas suggested by MMT and MS, like job guarantees and guaranteed incomes. The current system does not suggest or support neither of these.
Nonetheless, our current system does support some social programs – we’ve seen how well those are working to get people out of poverty. NOT!!!!!!!!
So this moron thinks all the foreign owned treasuries and dollars are going to get parked back at the fed and cause hyperinflation. Nobody is going to want to hold dollars, how does that cause inflation? What other country is taking up the slack of the dollar, and how does that cause hyperinflation. Wages continue going down, how does that cause hyperinflation. I see economic misery , but not hyperinflation.
As T-bonds = savings accounts at the Fed,
All foreign held money in securities accounts are already at the Fed. Securities and Reserves (checking and savings at the Fed) are strictly Govt money, and can never leave the Fed’s balance sheet in the aggregate (obviously I’m ignoring the tiny portion of reserves held as physical cash). Such is the nature of the accounting.
Inflation cannot happen when wages are flat and wages are always flat when the unemployment rate is above 5%:
So before inflation ever became a problem we would have to sustain full employment for some time and consequently see quickly increasing wages. Not gonna happen anytime soon.
Victor Sperandeo, a well known trader, thinks were getting hyperinflation as well. How could he profit from making people think this? – from market manipulation? Is he probably getting paid by his rich clients to say this?
@ Newbie: Mr. Sperandeo is a garden-variety snake oil salesman who is always looking for new suckers, and using the Big Lie to lure them in.
He runs a hedge fund that consists of trading in energy futures, gold, and other commodities, and he wants you to give him your money so he can play with it.
Most people who run hedge funds based on trading are constantly claiming that we are on the verge of some catastrophe (usually hyper-inflation) and that you must give them your money if you want to survive. (“The sky is falling! Give me your money!”)
They do this for years, never changing their sales pitch. They claim that the USA is the same as Greece or Zimbabwe, or (in Mr. Sperandeo’s case) Weimar Germany. Why? Because of the (totally fictitious) “national debt crisis.” That is, Sperandeo says we will have hyper-inflation because there will be a loss in confidence in the US government’s ability to repay its debt.
That’s nonsense. In the first place, the “national debt” is only a “debt” when looked at one way. It represents the money that people have put in Fed savings accounts.
In the second place, the US government can retire this so-called “debt” instantly and effortlessly at any time, with no destructive effects. Also the government can simply stop selling T-securities.
In the third place, hyper-inflation is not a monetary phenomenon. Instead, it is a breakdown in physical society and government. Mr. Sperandeo has no proof that US society and government are about to collapse.
In 1987 he accurately predicted that the stock market would crash, but this is an entirely different matter from hyper-inflation. Besides, anyone who was paying attention knew that the stock market was so leveraged that a crash was inevitable. Too many stocks had been bought on margin “(i.e. with borrowed money).
Mr. Sperandeo’s video includes a quote from George Soros: “Economic history is a never-ending series of episodes base on lies and falsehoods. The object is to recognize the trend whose premise is false, ride that trend to profits, and step off before it is discredited.”
This is ironic, because Mr. Sperandeo wants you to believe the false trend that “hyper-inflation is near.” Like any huckster who trades on the Big Lie, he claims that the USA’s debt-to-GDP ratio is dangerously high.
In reality, the debt-to-GDP ratio is utterly meaningless for governments that have Monetary Sovereignty (like the USA’s). Note that I did not say false, incorrect, or distorted. I said meaningless. It’s like making weather predictions on Earth based on tidal movements on Saturn.
Remember: there are three classes of people who champion the Big Lie
1. The rich and their toadies (pundits, professors, and politicians). The Big Lie widens the wealth gap between the rich and the rest.
2. Hucksters and their suckers, like Mr. Sperandeo and his victims. The Big Lie is the basis by which they sell their snake oil.
3. Ordinary people who are full of hate, and who seek targets to direct their hate at. These people regard the poor as evil, and they want this or that group to be punished with austerity. They use the Big Like to justify their selfishness.
What Steve Forbes thinks:
“Forbes says we have not gotten hyperinflation yet because of the Fed also suppressing long-term interest rates.”
Doesn’t the Fed actually explicitly set the federal funds rate, then banks base the rate that they set for private bonds on the federal rate (and also based on bond duration)? How does setting the long term treasury bond rate low (I’m assuming this is what Forbes means by the term “suppressing”, but I could be wrong) cause hyperinflation?
If anything, suppressing (lowering) interest rates would be inflationary — certainly not a prevention or cure for inflation or hyper-inflation.
Apparently, he has justified a wrongheaded idea (imminent hyper-inflation) with another wrongheaded idea (cut interest rates to prevent hyper-inflation).
The relationships between inflation, economic activity, and interest rates are not well understood by the economics community. The relationships are very complex and constantly changing.
An example (lets assume a somewhat fixed spread between long and short term securities, the historic norm in other words:
What is the impact of lower interest rates on inflation?
Seems like a simple enough question, but once you start to look under the hood, it becomes a nightmare of interdependence, correlations, and causality.
Ceterus Paribus, the deficit will decrease when interest rates go down sincethe Govt is a net payer of interest.
But the size of the decrease in the deficit is 100% dependent on the level of outstanding T-bonds.
$1T T-bonds = $10 billion in interest expense per 1% change in the interest rate.
$10T T-bonds = $100 billion in interest expense change per 1% change in the FFR
$50T T-bonds = $500 billion ……
so the impact of a 10% increase in interest rates, which would supposedly fight inflation per Rodger and many others, would result in an increase in the deficit and consequently GDP by
$100B or less than 1% of GDP for the 1stt I.E.
$1T or over 6% of GDP for the 2nd I.E.
$5T or over 30% of GDP for the 3rd I.E.
I hope you can see what I’m getting at here.
Yes, inflation is a complex web of interrelationships. For the past 50 years, inflation has been related more to the price of oil, than anything else, with interest rates being the primary moderator.
But weather, wars, employment, sudden events (hurricanes, volcanoes, etc.), deficits spending, not only by the U.S. but by all nations, playing a role.
It is impossible to say, “If this happens, we will have this amount of inflation,” unless a multitude of factors is considered.
As for predictions of hyper-inflation — those making such predictions are fools or liars.
FYI for oil price and inflation trends:
“Judging by this data, it appears that the strong correlation between oil prices and inflation that was seen in the 1970s has weakened significantly.”
This chart shows the relationship between oil prices and inflation as measured by the Consumer Price Index (CPI):
Should be an easy sell, you can look at treasury’s , representing U.S “debt”, in the same way the debt of a private company or individual is inferred. In this way our government is basically a competitor in the fictitious free market for scarce dollars that replaced Adam Smith’s natural barter economy. The crazy idea that the government should strive for a surplus fits this logic. Using an exchangeable currency limited to a fixed commodity like gold, this might make sense, but obviously limits economic growth by constraining the money supply to the commodity. . David Graeber disproves the myth of barter and the advantages of commodity money in his book ‘Debt”.
You can look at treasuries as tribute payments from the various countries our military bases stand , ready to bomb any disruption within a couple of hours. No other civilization has ever possessed this enormous advantage . You can certainly argue thats the basis for the dollars reserve status and oil pricing determinant. Ever since the end of ww11, anyhow. Non the less this view should quiet the debt nuts, since no one is obviously expecting anything but a rollover in treasuries. Governments like China’s need these investments to deposit the dollars they obtain from trade. They’re monetarily sovereign as well , and can create ad-hock all the yuan currency they need, but need the treasury’s to instigate their people to work hard, sort of influencing them to be productive and non revolutionary. .Maybe that’s evil, but is the role governments historically have served, promote cohesion , which beets war mongering.
You can view treasury’s as they are, another form of money, or accounting at the fed. One that is slightly less liquid and offers an interest incentive, so conservative users of the currency can save and obtain an interest payment . That interest feature enables the fed. to manage the currency, though it could just as easily do it through reserve banking. using its monetary policies to encourage spending or saving, sort of a thermostat on the direction of GDP. The whole system has been a work in progress and the bonds are vestiges from the gold window. Though the Fed is a quasi private enterprise representing the major banks in its 12 regions, its still beholden to the treasury. Congress enacted it, and can terminate t. Another words they’re not evil bankers whom we’re all indebted to. That our government error-ed recapitalizing private banks after egregious mistakes , doesnt infer the fed is run by crooked bankers. Just influenced by heavily influenced politicians.
Education is the only fix. Viewing our system as it really operates is illuminating , offering a chance to get away from the constant growth paradigm we find ourselves in. As Graeber says , we need to learn to live more and maybe work less. We are experiencing many ecological problems from the demand to profit. Maybe its time for technology and science to help direct our productivity , rather than just market conditions, which tend to distort things. From my experience in life , the necessity to profit caused huge distortions, and than ultimately came tumbling down. I wish i understood monetary sovereignty 25 years ago.
What do you make of Frank Newman? He is an insider, wealthy corporate .1%. He wrote a book explaining the system, stressing the outstanding treasury debt represents the savings of the non governmental sector. Imploring his readers not to worry about deficits, they’re useful to stimulate depressed economies , and when things heat up again they’ll subside. Emphasizing government debt inst the same as personal debt , Basically the same analogy as you and Mossler. Maybe the conspiracy is really just ignorance. These doomsayers preaching hyperinflation from repatriated treasury’s must be great actors
“Outstanding treasury debt represents the savings of the non governmental sector.”
A simple and logical identity, but so hard for people to understand. I thought about putting this on a car bumper sticker:
Federal government public debt = personal private assets.
You may want think about that for a minute. If you are in the business of selling, you may want ensure you trade your goods and services before they are ‘worth’ more. Or before your profits can no longer buy what they previously did.
Perhaps the equation you should be focusing on is one that begins with goods and services produced by businesses and people and which are partly appropriated by an ever increasing share of “federal assets”.
@sucesofinanciero: I don’t understand your last post, my comment is just referring to a basic accounting balance.
What is a Treasury bond? What is it for?
What government creates and sells them? Why does it do this?
Who buys Treasury bonds?
Do you buy Treasury bonds? (They are also bought by bond mutual funds that you can buy). After you have bought them, who now owns them? You? Are they now part of your personal private assets in your brokerage account (or mutual fund)?
A good place to learn the truth:
Bill Moyers Outdoes Himself with Guest Mike Lofgren: “The Deep State Hiding in Plain Sight”
Great show. Hard to tell where truth and conspiracy overlap.