Today’s world can be summarized in two sentences:
Unless continuously fed with new credit, the global financial system will implode. And when confronted with this possibility, governments will always respond with new credit.
This has been true at least since the Long Term Capital Management collapse in 1998, and in the ensuing 14 years the global financial markets and the world’s governments have been partners in a dance in which crisis elicits monetary ease, which ignites an asset bubble, which bursts and elicits a new flood of credit. After each sequence the total amount of debt — and the system’s fragility — is even higher than before.
Through it all a few brave souls like Ron Paul have tried to stop the music and liquidate the debt, while other — far more numerous — authorities like New York Times columnist Paul Krugman have called for even more debt to produce higher inflation in order to liquidate the old debt. These worldviews — sound money to which the world must adapt versus flexible money that adapts to the needs of the economy — are mutually exclusive. Only one can win.
With all due respect to sound money advocates, there was never any doubt about the outcome. When voters suffer, governments armed with a printing press will always respond with easy money.
Today the debate ended. France has elected a socialist leader who will demand an end to austerity. The head of the European Central Bank has accepted that growth should henceforth take precedence over balanced budgets, and Fed chairman Ben Bernanke has made it clear that he’s ready to step in with more easing if necessary. Elections in Greece, Ireland and elsewhere will solidify this consensus.
So now begins the next, purely-inflationary stage of the process, in which governments and central banks abandon whatever restraints they once recognized and vow to do whatever it takes to put people back to work in the here-and-now. That means tax cuts, even bigger deficits, continued low interest rates and aggressive asset purchase programs.
Whether this “works”, i.e. whether the coming round of global devaluation produces higher employment with a minimum of instability, is an open question because we’ve never been here before.
No society in history has owed this much money, and the forces of global debt liquidation have never lost. Kondratieff Winter has never been bypassed and converted to Spring. But the world has never been armed with an unlimited printing press either. See The Long Wave Versus The Printing Press.
One thing that’s certain is that today’s tentative policies with one eye on deficits will soon be replaced by single-minded money printing, with a Krugman-esque goal of sustained 4% inflation. So now we know exactly what the world’s governments want. The question is, can they get it?
48 thoughts on "Krugman Finally Wins the Argument"
John Rubino:
Could you please cite one example of a “Government that responds with new credit?”
I thought that in the United States, the governments do not create money or credit; PRIVATE BANKS do this. The governments only borrow lots of the newly created credit (The Federal Reserve is privately owned by individuals called “Bankers”). Conveniently, many of the politicians are either highly influenced or controlled outright by the same individuals who control the quasi-money/credit creation.
Its not runaway government or out-of-control politicians or welfare addicts that are the problem; Its a group of powerful men running a devious, debt-enslavement scheme on you and your offspring.
If you’re curious how it works, read “Creature from Jekyll Island,” or watch “How to be a crook” on youtube.
Oh, one last thing.
Only one solution…. global default. Economic collapse.
Chaos. Reset. Restart.
Austerity only tries to uphold the current broken system by protecting the creditors and crushing the debtors.
It is a fools game in which those who are crushed by austerity rise up in rebellion.
Jess. I’m not talking about taking responsibility. Of course on a personal level we take responsibility. I have never taken a dime of handout money from any one or any government. I own my own very profitable company I hand built from the ground up. I live very well and contribute to the well being of others. But to think debt is the problem is wholly wrong. Debt did not cause people to fight like animals in the 1930s and the ensuing eruption of madness called WWII. It was caused by deprivation of resources. This was caused by austerity. To enact austerity is to deprive. When deprived people begin to act very crazy and dangerous and extremists rise into power. Take away basic necessities such as food, shelter, and health care and you create a tinderbox prepped for violent explosion. This is not my opinion. This is historical FACT. Maybe Jess should open a history book instead of washing his tiny brain. Debt is an abstraction of numbers on a computer or ledger entry. Austerity is taking food out of the mouths of children. Taking food out of the mouths of children will lead to mayhem and murder. Wash you brain and get ready for the mayhem and murder. Yay! Austerity… great idea if you like bloodshed.
Radically harsh austerity in 1930s Germany after WWI led to the formation of the Nazi party, the rise of Adolf Hitler, and eventually to WWII. The conservative party radically cut social programs and government at all levels, expecting that after a slight downturn the economy would rebound. It did not.
Austerity terrorizes the populace and can only lead to resistance, scapegoating, conflict and eventually to war.
Harsh Austerity always leads to devastating consequences, which usually includes the death of many people.
So my question is, using the historical lesson that austerity leads to conflict, and this has been the case repeatedly all over the world stretching back many centuries, why would anyone choose austerity. Conflict and mass causalities is the worst possible outcome. Why would a known path, austerity, leading to the worst possible outcome, death and destruction, be the first choice of anyone?
My advice to anyone who believes that the republican plan of cutting government spending and social programs is to study Germany or the Wiemar Republic 1930 to 1933. What the republicans in America are trying to implement is EXACTLY the same policies that the conservative government of that time in Germany implemented. And we all know what happened.
If you don’t believe me, read the history. It’s right there in black and white. Read it carefully and then consider that the Paul Ryan budget is the conservative agenda from Germany circa 1930. It is almost identical. History does not lie.
Do you still support it?
How did that worked out for humanity?
End austerity now.
We know where it leads and it is a terrifying place.
JMAC, you are confused and your argument is obsurd. Austerity is not the cause of the terrible things you mention……it is the DEBT that is the cause of Austerity, which may lead to other negative consequences. That is like blaming a bank for repossessing your car when you decided it was just too difficult to pay back the loan…….and then again blaming the bank if you get distraught and either kill yourself or others over your debt problems. I’m very disappointed in you and your views. It is you that needs to take responsiblity for your actions and stop blaming everyone else. I am so disgusted by what you have said I have to go wash my brain.
I think it’s going to be very interesting to see how all of this plays out. However, I’m not so sure that there is as much consensus amongst the big financial players as JR alludes to in this piece.
I was on vacation during the last few days but the last I heard Bernanke does not agree with Krugman that the inflation target should be 4% instead of 2% so I don’t see why just because a socialist (Hollande) was elected President of France, and that Greece now has a coalition government (maybe), that he would change his mind on that. There is a plausible mathematical reason for targeting 2% +/- inflation based upon the mechanics of fractional reserve lending and historical economic growth rates, but 4% is a completely arbitrary and indefensible amount that would further discredit the central bank and create unpredictable consequences of uncertainty in the financial markets.
It remains to be seen what Hollande really does now that he’s in. All of his populist talk may have been BS. Germany and the US immediately scheduled “a meeting” with him. Also, the ECB is still constrained by its own mandate to not “print” money and I doubt Germany would tolerate any further back-door shenanigans (like more LTRO) to get around that.
Furthermore, from what I’ve read even the dumbest of the elites are beginning to realize that lowering interest rates even more is not going to increase employment. Too many entities simply don’t want to borrow more money at any price, or they don’t qualify, so no demand implies no employment. All that would happen is to create more bank reserves if rates are lowered via bond and asset purchases. I just don’t think it would have much effect except to create even more uncertainty and inflation fears because if the money is not lent out then velocity won’t increase, and thus no inflation or employment. The relatively little inflation that we do have is due to government deficit spending because that borrowed-into-existence money is distributed throughout the economy via subsidies and entitlements, not private sector borrowing.
This piece has a catchy title but I doubt Krugman has won the argument though some economists (like Ugo Panizza and Andrea Presbitero) inadvertently fuel the controversy. They analyzed the evidence that high debt levels hinder a nation’s economic performance. They couldn’t prove a causal link but the correlation was essentially perfect. However, what did seem clear to them they wrote, was that high debt can reduce growth “because high debt leads to panic and contractionary policies.” But that’s bass-ackward logic: The slowing economic growth (due to high debt) comes first and is then what creates the panic and the reactionary policies. I think that’s one reason Americans are so complacent about our debt levels: until our economic growth slows more then panic and the ensuing reactionary policies will not be adopted. It’s hard to argue for high debt and deficit levels being the underlying causes of slow growth when interest rates are so low, which are enabling the financing of deficit spending that is keeping everything going.
We may now “know” what governments want (deficit spending and the continuation of the entitlement gravy trains) but I don’t think they will get it. Financing through the traditional bond markets will be self-limiting because the central banks will only take on so much suicidal bad debt, and private investors have already left the market. The only other option would be to distribute truly unbacked (i.e., not debt based) fiat to the populace directly (e..g, dropping currency from proverbial helicopters) but even Krugman could see that that would surely lead to a “crack-up boom”, but more “importantly” would impoverish the central banks and the global financial system through hyperinflation. Ain’t gonna happen.
The other option is to let the system literally deflate via deflation, which may win out any way despite all efforts to fight it, which would effectively reset the system.
In any case hard assets will ultimately be the only things left with real value.
I agree with your final conclusion and find your generalities to be fairly stated. I do take exception to the idea that entitlements drove the need to inflate the money supply. It is a huge problem. The greater need will be when the large institutional funds can no longer throw off the required profit to support their fiscal responsibilities. If your wealth is not defined by market funds or stocks you are in better shape. If you are in good health but your neighbors are not? There is where we find out what’s what. I am looking toward an uptick in borrowing rates which will force cheaper existing money into circulation. The impact may cause the whole thing to unravel.
If war is chosen, … well.
Be well, rodney
I am amazed that so many commentators around the world, not only in the US, feel that the current financial, ecological, oil, etc. problems can be “fixed”. We have also made great strides in medical technology but we do not delude ourselves we are immortal. We just live longer. Why then do we think we can abuse our world, currently especially the financial world, without suffering the consequences? Last years go around with the debt ceiling proved conclusively that the US can NEVER repay its debt without ever more Ponzi scheme money being borrowed. And the first rule of lending is not just to get your interest, but to get your principal back. Moreover, the world financial system went bankrupt 17 August 2008. Everything since has been papering over ever expanding cracks in the financial system by desperate governments.
It doesn’t really matter whether we die of cancer or heartbreak, inflation or deflation, we are just as dead. Personally, if one defines deflation as a massive asset destruction, I think deflation is the way we will go. Currently we have major systemic problems, not only in the system, but in what we expect from the system. I am a disciple of “dollar collapse”, and to me the most reseasonable scenario of it playing out is detailed in the novel Operation Phoenix at http://www.AllenCurrie.ca
I am John Galt just turning away from the current system of governance as totally unrescuable.
J’Bear
conventional policy is aimed to ensure continuous asset inflation.
in political economy terms, winning of asset owners as against labor.
eventually this will (has to) lead to hyperinflation like conditions.
all hyperinflations (have to) end in hyperdeflation.
reason? NOT fiat money etc. fiat money can ensure endless hyperinflation.
reason is politics. money, fiat or otherwise, exists for a purpose, to make society easier to manage and live in. hyperinflation makes it impossible to use money. so a political decision has to be made to “deflate” just like in the Volcker era.
I think there is a bit too much melodrama here. Every unbacked currency has eventually failed, except for the most recent ones, and these are now failing too. I doubt that that means the sun will stop shining, or that wheat fields will stop producing wheat.
If we get a worldwide depression worse than the 1930’s, that will mean a lot of economic pain. It will also mean plunging birth rates. Is that a bad thing in a world with 7 billion humans, the richest 1/4 of whom have maintained their lifestyle by borrowing their children’s, grandchildren’s, and great grandchildren’s savings.
Once the world’s economy contracts 20% or so, the environmental rape of the planet will stop, or at least slow down, and maybe a little healing will take place.
And we currently need a lot more debt not less
Debt backs both savings and money. Without enough debt we end up with
Low saving and or
Inadequate money
For one person to save another entity MUST take on debt. At present we have too much non Govt debt and far too little Govt debt
The shame is Govt debt can be increased by TAX cuts. The left though prefer to spend. So ignorance by most small Govt supporters about Govt debt (we need a lot more) means even more Govt spending as people, understandably, vote against unnecessary hardship.
“With all due respect to sound money advocates, there was never any doubt about the outcome. When voters suffer, governments armed with a printing press will always respond with easy money.”
There is no such thing as sound verse easy money. These terms are used by people very confused about what money is
There are two types of money
1 Bank credit is the money we use to buy real goods services and assets. (Notes and coins are no more than a token to represent bank credit).
2 Central bank reserves is the banks and treasuries money. Reserves are used for the banks to settle with other banks and the treasury (all tax and Govt bonds). And for treasury to pay for goods and services.
Billionaire Hugo Salinas Price – Elites Plan to Control the World
Today multi-billionaire Hugo Salinas Price told King World News in stunning detail what he believes to be the frightening plan to “control the world” going forward. He described this as a “very disturbing fact that is facing humanity.” Here is how he described the situation: “Eric, the problems we are seeing in the West are not going to be resolved in any positive way. What we have had in the West, in recent decades, has been the welfare state. The welfare state is, in my view, what I would call, ‘socialism light.’ We’ve had ‘socialism light’ and now we’re going to transition to full-blown socialism.”
Hugo Salinas Price continues:
“This could not be paid for out of taxes: It had to be financed. This is what has caused the explosion of debt in the West. The people who are in power, the elite, do not want to relinquish their power. They plan to retain it under full-blown socialism for the populations of the West.
This includes all countries that have central banks: They are going to have to follow suit. This is a very disturbing fact that is facing humanity. It means the inevitable decline of industrial civilization, and the inevitable impoverishment of the world’s population.
This means that over time there will be a decline in the number of people on this earth. That is the rather grim outlook that I see. So, it’s socialism ahead. And with that will come more government control and a centrally run economy. This is inefficient and unproductive, and it will lead to impoverishment.
Nikita Khrushchev, when he came to the United Nations, said, ‘We will bury you’….
Continue reading the Hugo Salinas Price interview below…
“Well, it’s not the USSR that buried us, it’s us burying ourselves, under the rule of our elite, who do not want to give up their control. The furtherance of their control lies in socialism.
I think this comes from a central idea that has possessed the imagination of the world. It’s the idea that authority comes from below. In other words, that authority comes from the people. This idea of authority from the will of the people is a myth of our civilization. Excuse me for saying that it’s a myth, but I see that as a fact.
I’m just saying that those who control the world know they have to curry the favor of the people. To do this they went the way of the welfare state, and democracy to give people the fiction they (the people) are in control. Well, they are not and never have been.
We also have fiat money to fund the welfare state. Then we have entertainment to distract the people. We also have war to distract the people. The airplanes bomb people, and the victims are just humans who are expendable. This is how the elite see things.
We will continue to see this from the elite, in order to maintain their power. Remember, socialism impoverishes, it consumes capital, it does not accumulate capital. So, you will have this de-capitalization that will come with socialism.
When you combine that with the probability that we are at peak oil, as that prime source of energy comes to a point where it begins to decline, you will see a decrease in the population.”
Hugo Salinas Price also warned: “Italy and Spain have already imposed a limit on cash transactions. Any transaction above 2,500 euros has to be paid with a credit card. Now that’s ominous. It confirms the socialist trend because in socialism you have very little use for money. Everything is supplied by means of ration cards.
That’s what I see coming, and I see it in the United States as well. Take, for example, the fact that there are 46.5 million people on food stamps. You already have the ration card in action there.”
He also added: “For those people who want to protect themselves, they are going to have to take some drastic measures. They will have to be imaginative in trying to protect themselves in whatever way they can from this onslaught of centralized government.
Everybody should constitute a reserve of something that will function as ‘real’ money because there will be continued abuse of fiat money in order to fund the socialist state. We will see more limitations on the use of cash, and people need to be prepared for that.”
Hugo Salinas Price is a hero to many, and he has crusaded to help poor people around the world. For KWN readers and listeners globally, when Hugo Salinas Price talks about ‘real’ money, based on our interviews over the years, I believe he means gold and silver. He prefers physical silver because it is easier to exchange for goods or services if the system breaks down.
KingWorldNews.com
History records that the money changers have used every form of abuse, intrigue, deceit, and violent means
possible to maintain their control over governments by controlling money and it’s issuance.”
-James Madison
PUBLIC CENTRAL BANK
– On Reclaiming Our Central Bank And Monetary Policy –
————————————————————————-
“Whoever controls the volume of money in any country is
the master of all its legislation and commerce.”
President James A. Garfield
————————————————————————-
The “Federal Reserve” is not a government institution but a private central bank owned by a handful of major banks and bond dealers. As such, it is a cartel owned, controlled, and essentially for-profit driven, not by the people of the United States but, instead, by the banking industry’s ruling elite. This oligarchic setup generates the most costly, debt-based, money system and greatest conflicts of interest in the history of the world. It is a system clearly at odds with the intent of the founders of the United States of America.
————————————————————————-
Public Central Bank – Fire The Fed
“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks…will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered… The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”
Thomas Jefferson
The current banking and Wall Street crisis is a direct result of a private central bank system. We are cursed with the deliberately mis-named “Federal” Reserve which is no more than a privatized and exclusive debt-money creation system devoid of public ownership. In this so-called “independent” institution there is no public interest or power within its privately-owned, profit-seeking, system.
When the power to create our money and credit is in private hands, and based on an exclusive franchise for debt-money creation and sale of bonds at interest – as opposed to direct Treasury financing – then the entire economic and social system is set up for private profit, and debt ruin, at public expense. As history has proven, this structure is virtually guaranteed to result in endless predation, corruption, and eventual collapse at immense public expense.
The founders of this country well understood this very problem and so, in their wisdom, put the “purse powers” in the hands of the most democratic body – i.e., Congress – exactly so the people would have the right and power to vote on their monetary policy every two years, course correct their own society and economy, and escape the predictable ruin of a private debt-money system under which we have no alternative or escape.
Today, however, under a private central bank system we have no such public privilege or power. We are powerless at the hands of the real owners of the “Federal’ Reserve – i.e., the major investment banks and historic banking families both here and abroad. These are the very people and institutions who have profited, geared the structure to their endless, debt-money, advantage and proceeded to rape the system until it collapses and the public is forced to rescue and bailout the very predators and criminals at the helm. In any case, this is a society-controlling power no private entity should ever attain.
Despite the overwhelming and recurrent failures of this privatized system bailout plans are being devised by these very same bankers in order to give the “Fed” even more global powers – all to foster a pretense of regulation and eliminate any vestiges of public money powers around the world. In the midst of this crisis, our pathetic Congress – fed by corporate money and cowed by a corporate press – may well succumb to giving these expanded powers to the same group of international bankers responsible for this and every other monetary crisis.
Clearly, however, the time is ripe to fire the Fed. We must take its stock under public ownership, if for no other reason then for their ruination of the dollar, aggravating boom and bust cycles, bailout thievery, and to prevent exactly these occurrences again in the future – all of which stem from a lightly or completely unregulated, private, banking system acting to privatize profits and socialize losses. Moral hazard is endless and systemic under this oligarchic structure.
“The bank was saved but the money was ruined.”
William Gouge (1796-1863)
“You gotta start executin’ a few of those white fuckin’ bankers”
George Carlin
Be sure to pay attention to this message-It could change your future rapidily–read to the end. Please
Scarry!!!!!!
This is very scary!!!!!!!
This will knock your socks off! — a MUST see!!!
Please watch the entire video….This is a MUST!
Then send it to everyone you know.
http://www.youtube.com/watch_popup?v=HcBaSP31Be8&vg=medium
The RSA Animate Lecture Series, has one fascinating video post on the topic of “Motivation”. Currect research reveals that monetary rewards work fine if the assigned task requires physical effort, but little brain-power. Offer a big prize for digging the deepest hole, and big holes will be dug in record breaking time!…When it comes to an intellectual challenge, such as software engineering/whatever, the research discovered that the bigger the prize, the worse the participants performed. The optimum solution was to remove the topic of monetary reward from the equation, by providing adequate and sufficient funding to allow the participants to concentrate fully on the problem set before them. No competition! This way participants can share ideas and work cooperatively to achieve the desired objective. Satisfaction at a task completed was reward enough!
Hey Alastair, not sure how this relates to monetary policy but the books “No Contest” and “Punished by Rewards” by Alfie Kohn both support the same idea– competition and extrinsic rewards result in worse individual performance. Very counter-intuitive for most people but that’s what the research says.
Exactly why performance based pay for school teachers is counter productive. Teaching is a collaborative, not competitive profession.
Let’s just get it over with and get to the crack-up boom part…….then we can really start over. My suspicions seem reconfirmed almost everyday when I open up the financial paper……and you aren’t helping John. ((joke))
My solution is end too big to fail, before we take on new debt. The debt of the banks are looming out there and easy to pick off if we had someone in charge that would throw the rascals out, and nationalize the banks, until they becomes solvent so that they could be sold again. Moreover, the banking system needs to put in place a Glass Steagall Act so that main street will not be effected by the greed on Wall Street. People, it’s pretty simple all we need to do is convince Pres. Obama to do the right thing. What’s your problem?
Using the word “Wins” feels inaccurate (or at least insufficient) in describing this situation. I think I would have phrased it…”Krugman Has His Way With…”. That title would have had the benefit of being both descriptive and unfortunately metaphorical.
Nice article; but the whole outcome
rests on velocity. Watch the curves
over the next 6 months. I cannot be-
lieve they won’t steepen (inflation
warning) and asset scarcity will
add its share. But when will these
huge debts become visibly unpayable.
You could argue that they already have, in which case velocity will balloon
without warning, and this nightmare
will end with a bang, taking the
Krugmans with it. That’s almost too
pat, but now it seems much less like
the stuff of B-grade movies. WGT
John-
Thanks for linking to the Keiser-Celente segment on RT. We should all be as worked up as Herbert and Celente…
Matt
“…and vow to do whatever it takes to put people back to work in the here-and-now. That means tax cuts, even bigger deficits, continued low interest rates and aggressive asset purchase programs.”
‘Tax cuts’ as represented in the context within the statement above by the author, as being in the same company as ‘even bigger deficits’ and bond $buying, seems to indicate a bias towards the (false in my view) belief that Tax increases are a necessary component of a meaningful recovery. Balderdash…
As governments are concerned – and concerning us here in the States specifically – local, state and federal, there is Rarely – if ever, a $revenue problem. There is however, everywhere and always, a $SPENDING Problem…
Flat tax? National sales tax? True fairness in taxation/policy? I’m down for that! Perhaps even something better – like PART-TIME Legislatorship, as in ‘Limited Government’ as prescribed? Hell Yes!
But please, what is the fascination with Raising Taxes…? Is it a morality/’social justice’ bugaboo?
Mark if all new money is created with debt isn’t there a point on the timeline when a deflationary collapse becomes impossible to avoid?
For example if the US Federal government hits $50 Trillion in debt and the GDP is still $15 Trillion they won’t be able to make their interest payments even if the Fed monetizes everything at a 1% rate. The government would be forced to default and this in turn would trigger the beginning of deflation.
Am I missing something? (wouldn’t be the first or last time)
In the end governments can always create new money out of thin air, i.e. money which does not represent a debt to anyone. Strict defaults usually only happen for political reasons such as revolution or war, I believe.
@Droid, The Fed is making/printing the money and charging the gov interest to borrow it. So unless they have a 0% rate (0.5% at the moment) gov debt will increase in the situation you describe. (as I understand it any ways)
It could be that we are going to have forced default and inflation, and then deflation.
But remember what big tecnology breackups could do for the economy,,, big productivity could avoid inflation, and pay debts quickly,, and make the banks even richer…
And yes, they will get it, in spades.
I think you mean, in the ensuing 14 years.
Er, yeah, 14. Thanks Mark!
You are 100% correct, John. There is no way to escape a credit collapse. The fires of inflation will soon be fed. In November 2012 it’s about who do we want at the gas pump? If the Democrats control the oval office it will be spent on infrastructure and social giveaways. If the Republicans, it will get spent on war and corporate giveaways.
Tom, by corporate giveaways I’m guessing that you mean tax breaks for corporations. Now corporations, as you know, are imaginary persons. But imaginary persons do not pay tax. Only real people pay tax. 100% of corporate tax is paid by customers, shareholders, and other real humans. If all corporate taxes were reduced to zero, 100% of corporate profits would still be taxed as real humans received them. The only real corporate giveaways are those given by national socialists to their Democratic socialist friends and “green” bundlers. And by the way, two 1964 silver dimes will get you a gallon of gasoline today and that doesn’t seem too high to me. Gasoline is not going up, the fiat US dollar is going down. The only politicians that have the slightest interest in stopping the dollar collapse are Republicians, so can we stop already with the nonsense about no difference between the two main parties?
So I guess we all owe a DEBT of gratitude to the R.P. for saving us into prosperity when they controlled both Houses. Not. No the DEBT continued even then. Keith if you are one or the other YOU are the problem. Nothing but perpetual fear mongering.
dixiebrick, what year was it when the Republicans had a filibuster proof majority in the house or the senate. My memory fails me. I do recall many Republican budgets being termed “dead on arrival” by the Democrats. When mail was coming in to the congress 50 to 1 against approval of the “stimulus” bill, which party voted 90 something % against it, and what party voted 90 something % for it. Refresh my memory. If you do not support the one of the two major parties which is trying to prevent the coming economic collapse, do not complain when it arrives. Believe it or not, there is a difference between the Democrats and the Republicans. I believe we are doomed, but the Nock’s remnant will survive and should be encouraged.
Keith it was certainly a republican fantasy that “WE must spend the surplus before it builds up so large that it will overwhelm the government!” This kind of Greenspan-Reagan-Bush braing-damaged thinking is what got us into this mess. By all rights, the republicans should be forced to GET US OUT OF THIS MESS but they are totally irresponsible shills whose only corrosive and immoral purpose is to rip off the US Government (until it becomes a dictatorship) by stealing money for their “Tax Breaks” before the whole house of cards collapses. Today, The Republican party is a party of LOOTERS …
Let’s see you want “filibuster proof” how bout that it only took 14 days to approve the 700 billion that was taken from the taxpayers to save the world (more like 3 trillion and counting). Is that filibuster proof for you. I am not a complainer just a realist. As for Nock’s remnant the nazis didn’t stop till the walls came down literally upon them. So I guess we have a lot of pain yet to come.
Inflation.
How can inflation occur with Govt deficit spending when the extra money / bank credit created by this spending is then drained by Govt bonds.
Non Govt debt increases MIGHT cause inflation though
I think you’re neglecting money velocity. Money drained out of the system when banks buy gov’t bonds from the Fed is often money that was just sitting on bank balance sheets anyway, and had very little velocity. But meanwhile, the money the US gov’t borrowed has been given out to federal employees, senior citizens, food stamp recipients, etc, and nearly all of this money is immediately spent. So even if the money distributed by the gov’t is equal to the money drained out of the banking system, which I think is what you were saying, there is still an increase in the MV side of MV = PQ. And Q surely isn’t increasing.
John is not 100% correct, and he’s wrong about why credit must always expand.
First, “Governments” do not have printing presses, nor do “Governments” respond with credit expansion.
In our system, BANKS create ALL of the quasi-money. They issue all the credit. HOW? When loans are issued. When you sign the mortgage note, or when Congress agrees to “borrow” 100 Billion, this “Money” (really its an artificial, synthetic money-substitute) is created out of thin air by individuals called private bankers. These powerful men have paid off politicians to pass “legal tender laws” that require Judges to treat phony, digital monopoly scrip as the only lawful payment of private debt and taxes. So we’re all forced to used their debt scam.
The system must always expand, for eternity, because there isn’t enough money, ever, to pay the interest. This is not a design flaw; This is an intention component to keep you and your prosterity running full speed on an invisible treadmill from cradle to grave when you finally give up your exhausted ghosts.
Here’s an example: If the total money supply were 1 trillion dollars, and it was all created by debt at 4% interest, where does the money come from to pay the interest? Answer: more debt. This is like a game of musical chairs: ten butts, only eight folding chairs. Bankruptcies and financial implosions are baked into the cake (LTCM).
John: please quit blaming the Krugmans, the Bernankes, and the politicians. They are only the hood ornaments on the financial reaping machine. The guys who built the machine, and drive it are THE BANKERS. Blaming their puppets and hood ornaments is a waste of time, like criticizing the hood ornament on a Panzer tank that is crashing through your living room.
With Love,
Pete