PDA

View Full Version : Why we can't "inflate" the debt away


gates
October 23, 2010, 13:23
you'll have to go to the ticker to view the charts:

http://market-ticker.org/akcs-www?post=170071


The Weekly Political DOUCHEBAG: Mosler


Now this is the ultimate in political douchebag nonsense:

WATERBURY, Conn.--(BUSINESS WIRE)--Warren Mosler, Connecticut’s Independent candidate for U.S. Senate today announced that it is an indisputable fact that U.S. Government spending is not operationally constrained by revenue and will give $100 million of his own money to pay down the Federal deficit if any Congressman or Senator can prove him wrong. “I am running for U.S. Senate to see my policies implemented to create the 20 million jobs we need. And to do this it must be understood that there is simply no such thing as the U.S. Federal government running out of money, nor is the Federal government operationally dependent on borrowing from China or anyone else. U.S. states, individuals, and companies can indeed become insolvent, but U.S. government checks will never bounce,” states Mosler. “Yes, large Federal deficits that push the economy beyond the point of full employment can lead to inflation or currency devaluation, but not bankruptcy and not bounced checks. If lawmakers today understood this fact, they would not be looking to cut Social Security and we would not still be mired in this disastrous recession.”

Can lead to?

Uh, no. As a matter of arithmetic will directly cause, not "lead to."

Let's present some data.

This is the monetary base - that is, the amount of currency in the system:



Notice that it has expanded by 150% in the last two years.

Now let's look at the debt in the system:



Now I want to pay very close attention to the following series of charts:









I picked on these four commodities because (1) they're easily charted as to price and (2) they are all produced here in the United States, removing any claim of "currency arbitrage" or similar (such as is the case for Gold and Silver, almost all of which are produced outside the US, and oil, which we import 70% of our consumption.)

Notice that the monetary base has increased by approximately 150% and all of the prices of these basic commodities have roughly doubled - or more. That is, they've risen in price at approximately the same amount as the expansion of the monetary base.

To "inflate away" the debt as Mr. Mosler claims he can do to "support" employment, we would have to reduce the debt in the system (or it's impact) to roughly year 2000 levels. This would require emitting about $20 trillion dollars in currency.

That is approximately 10 times what is in circulation today, and whether it is done by Federal Reserve monetization (that is, raw printing) or the charade game of "selling" debt into the markets is immaterial, as the impact is identical in either case.

The CBO believes that we will add more than $6 trillion dollars of Federal Debt in the next 10 years. The CBO has a history of being "light" in their estimates, and is frequently off by half or more. Indeed, in 2006 nobody believed that we would be running a baseline deficit of $1.3 trillion. Yet we are.

If we were to once again double the monetary base (that is, monetize just another $2 trillion, or issue another $2 trillion in debt) it is reasonable to expect that the price of commodities would again double. And so on, for each additional doubling.

Mosler's claim is similar to taking a dollar bill and cutting it in half, then declaring that each half, because it is printed on the dollar's paper, is in fact a dollar. He then would do this again, a couple more times, and in fact if we were to do what he claims he wants to in order to create his "20 million jobs" we would have to increase the monetary base, or its equivalent via debt issuance, by a factor of five.

What you would have may be declared a dollar, but it will only buy 1/5th of the goods and services that a dollar buys today.

Mosler's "prescription" would drive gasoline to $15/gallon, a loaf of bread to $10, and literally triple the price of virtually everything in the grocery store. The 40 million Americans on food stamps would explode to over 100 million, and even with food coupons at today's rates of payment you would still starve to death as you could only obtain 1/3rd to 1/5th the caloric intake of today's food stamp ration!

Yes, we would have 20 million "new jobs" - but all jobs, including the ones we have now, would receive the same pay in the number of dollars but they would only buy 1/3rd to 1/5th as much in goods and services - and this assumes that foreign nations allow this sort of "beggar thy neighbor" game to be conducted without constricting resources we need - like oil.

That is, oil would cost $250/gallon, assuming that those foreign nations did not retaliate - and they would retaliate. Remember that today, "Oil Exporters" hold $226 billion in our marketable Treasury debt. Were we to do this as Mosler suggests, those oil exporters would see their $226 billion turn into $50 billion in actual "today's purchasing power" dollars. They would of course respond by attempting to recapture the entirety of the $226 billion plus the interest they expected to earn in today's purchasing power, which would mean oil would likely go to $400/bbl - not $250 - and gasoline would exceed $20/gallon.

Then there's China and Japan. They, together, hold $1.7 trillion of said debt. They too expect all the purchasing power plus the interest. They will retaliate as well, and the result will be that while the purchasing power of our labor will decline in nominal price terms what they export to us will cost more, not less.

Down this road lies Weimar-style destruction of the currency.

While Mr. Mosler is technically correct operationally what he intends and promotes, which is just a steroid-enhanced version of what Ben Bernanke is doing right now, will destroy both the currency and the government.

For this "press release" he wins my award of week among political candidates:

alant
October 23, 2010, 21:36
Must be gong blind, can't see any charts. Maybe it's the NSA thinking this is wikileaks again.

motosapien
October 23, 2010, 21:47
Originally posted by alant
Must be gong blind, can't see any charts. Maybe it's the NSA thinking this is wikileaks again.

I hope your not going blind. Adding that malady to your obvious "soft in the head" would be tragic.

gates
October 24, 2010, 01:58
What part of :

"you'll have to go to the ticker to view the charts:"

The very FIRST line of the post! do you have a reading comprehension problem?

alant
October 24, 2010, 19:41
Mosler is stating the obvious - that the US government can print as much money as it wants. You can try to dispute that, but so far the government has been proving you wrong.

Hell, they don't even have to go to the trouble of printing it anymore, they can electronically transfer billions/trillions.

gates
October 24, 2010, 20:03
Of course they can - what they CANNOT do is control the price of gas and foodstuffs without admitting to becoming a command economy - at that point it's game over... the shelves stay empty - the result is STILL collapse.

xtremerange
October 25, 2010, 14:41
Nothing in the commentary actually suggests it is impossible to inflate US debt away. It only says that it would be very, very painful and quite economically disruptive.

gates
October 25, 2010, 15:10
Im making the assumption people will riot and overthrow the govt if they are starving and have their life savings zeroed out -

RG Coburn
October 25, 2010, 18:15
Originally posted by alant
Mosler is stating the obvious - that the US government can print as much money as it wants.

So here's the real question...
Do we invest in safes or wheelbarrows?

gates
October 25, 2010, 18:22
belt fed machine guns and LOTS of ammo...

alant
October 25, 2010, 18:28
Originally posted by gates
Im making the assumption people will riot and overthrow the govt if they are starving and have their life savings zeroed out -
"They say that every society is only three meals away from revolution. Deprive a culture of food for three meals, and you'll have an anarchy. And it's true, isn't it? You haven't eaten for a couple of days, and you've turned into a barbarian."
- Arnold Rimmer in Red Dwarf, Series III episode 2

I think you underestimate both the abilities of our government and the ingenuity of the American people when it comes to avoiding starvation.

Life savings for those not in debt. If your life savings are $1400 in a checking account and you owe $14,000 it's a different story.

Eric Bryant
October 25, 2010, 18:29
Originally posted by gates
Im making the assumption people will riot and overthrow the govt if they are starving and have their life savings zeroed out -

We were pretty close to seeing our savings zeroed-out in 2008 and people still rolled over. I don't see any uprising occurring, and if it does, it'll get swatted down in a nanosecond (with at least half the population cheering on the police or troops).

What is more likely is that the Fed will print, and the "disadvantaged" will be given discount vouchers (or something of the sort) for food and fuel. You know - pretty much what we're already doing ;)