Canadian Explains U.S. Debt Crisis

[EdwardBaiamonte]

Milton Friedman admitted the QTM was problematic later on in his life. I even gave you a very elementary example which I thought you could comprehend. I was clearly mistaken.

Milton did? I think you're a liberal liar. Can you back this up or admit to being a typical low IQ liberal liar??

 

[Norman]

The U.S. national debt (I prefer national equity or national credit account) and all this talk about 'borrowing' from China tends to be misconstrued. We have to realize US Treasuries are, at the end of the day, nothing more than a savings account at the FED, which they call securities accounts. So yeah, as I'm sure you must realize, the trillions in national debt is nothing more than trillions in savings accounts at the FED. When China purchases Treasuries, people refer to it as going into debt, when all that occurs is transactional. All the dollars they receive from us by selling us stuff goes into their checking account (reserve account) at the FED and is transferred to their savings account (Treasuries) And when the US pays back China, which occurs on a monthly basis, all that occurs is that the Fed transfers those dollars (and some accrued interest) from China's savings account (Treasuries) back over to China's checking account (reserve account), which is all part of the Federal Reserves balance sheet. Our children and grandchildren won't ever be involved in the aforementioned process.

By the way, as a bond trader of ten years, I can tell you this is all common knowledge among my former colleagues. I don't know why people seem to lose sleep over it. This is simply the operational realities of how the Treasury market. For example, the US rolled over around 30 Trillion in Treasuries during the first half of 2012, yet we suffered zero hyperinflation and interest rates are still zero.

OK, I am not sure that I follow you here. First of all, the american debt is not the government debt but the trade deficit. The federal debt is federal debt, and it is a problem as well. Again, not all "chinese dollars" are invested. The federal debt is also a problem because all the promises they have made to people that can't be kept without changes. For young americans the pensions are a pretty big income transfer.

I don't really see the point of what you are saying with the FED stuff. I thought treasury handles the debt, FED just buys some of it (I am not american mind you). But I don't see how it matters whos savings or checking account it is. The principle is the same. China must be paid back with dollars + interest. And to do that government must tax or inflate... or burrow more, or raise the money through some other way. It matters a little how the accounts are organized.

The problem with government debt is that there is a huge deficit, and how are you going to turn that around, especially if the interest rates raise? And especially when the debt is mostly short term financed.

 

[editec]

Yes. There is no US Debt crisis. It's all make-believe.

care to explain???????????

If the money is fiat, so too are the debts counted in that fiat money?

Can't have it both way..either the money has meaning and the debt is meaningful or its not.

 

[EdwardBaiamonte]

either the money has meaning and the debt is meaningful or its not.

too stuipid!! IF our money has no meaning then give it to me so I can use it buy very menaingful things like food clothing and shelter.

Slow much???

 

[Kimura]

OK, I am not sure that I follow you here. First of all, the american debt is not the government debt but the trade deficit. The federal debt is federal debt, and it is a problem as well. Again, not all "chinese dollars" are invested. The federal debt is also a problem because all the promises they have made to people that can't be kept without changes. For young americans the pensions are a pretty big income transfer.

I don't really see the point of what you are saying with the FED stuff. I thought treasury handles the debt, FED just buys some of it (I am not american mind you). But I don't see how it matters whos savings or checking account it is. The principle is the same. China must be paid back with dollars + interest. And to do that government must tax or inflate... or burrow more, or raise the money through some other way. It matters a little how the accounts are organized.

The problem with government debt is that there is a huge deficit, and how are you going to turn that around, especially if the interest rates raise? And especially when the debt is mostly short term financed.

The US government can create any amount of dollars it so desires. The issue is, at the end of the end of the day, if that spending will result in the necessary amounts of real assets retirees will need. Real assets being food, clothing, shelter, medical care, etc. that are necessary for retirees to maintain a comfortable retirement. As long as we have real goods and services, the funding side of the equation is simple: all the government has to do is cut checks. As long as the supply or quantity of real goods and services increases in tandem with the supply of money, there won't be an inflation problem. In the event the government spends more than the amount of goods and services being produced, we could have an inflationary risk. This is the ONLY risk for Social Security and entitlements. Congress can fund these programs into perpetuity if they so desire.

When the government creates money/spends, it does so by writing Treasury checks or crediting private bank accounts. It's not necessary to differentiate between the FED and the Treasury when discussing government spending, expenditures and receipts. The government doesn't have to borrow or tax to fund expenditures. Federal spending is essentially costless for the government. However, if we were still on a gold standard, the government would have to borrow and tax to make sure it could maintain a fixed exchange rate. This is no longer the case under a fiat system.

Deficits create net financial assets for the private sector, so they aren't necessarily an issue per se. The government can always service its debt, regardless of the size, at least from a monetary standpoint. Also, bond markets don’t control US interest rates. The FED controls interest rates by exercising its authority to meet its target interest rates, so interest rates are anchored directly to FED policy. I really can't see the FED raising interest rates in this environment.

 

[DSGE]

The US government can create any amount of dollars it so desires. The issue is, at the end of the end of the day, if that spending will result in the necessary amounts of real assets retirees will need. Real assets being food, clothing, shelter, medical care, etc. that are necessary for retirees to maintain a comfortable retirement. As long as we have real goods and services, the funding side of the equation is simple: all the government has to do is cut checks. As long as the supply or quantity of real goods and services increases in tandem with the supply of money, there won't be an inflation problem. In the event the government spends more than the amount of goods and services being produced, we could have an inflationary risk. This is the ONLY risk for Social Security and entitlements. Congress can fund these programs into perpetuity if they so desire.

When the government creates money/spends, it does so by writing Treasury checks or crediting private bank accounts. It's not necessary to differentiate between the FED and the Treasury when discussing government spending, expenditures and receipts. The government doesn't have to borrow or tax to fund expenditures. Federal spending is essentially costless for the government. However, if we were still on a gold standard, the government would have to borrow and tax to make sure it could maintain a fixed exchange rate. This is no longer the case under a fiat system.

Whoa whoa, hold up. The Treasury can't write a cheque and deposit it at the Fed, which just creates money for it. That's possible under a fiduciary standard, but that's not what they actually do. Congress has given the Fed instrument independence, within very tight constraints (they're only allowed to buy/sell bonds in the open market, for example, they're not allowed to buy bonds directly from the Treasury), and instructed them to conduct policy in order to achieve price stability and maximum employment. The Fed interprets that as a 2% inflation target.

In terms of funding for the Treasury, it's the same as if they were under a gold standard. The Treasury can only get their hands on more money through issuing T-securities. Obviously under a fiduciary standard they could just write a cheque and have the Fed back it for them, but they've specifically tied their own hands by making it illegal to do that since it invariably results in hyperinflations.

Deficits create net financial assets for the private sector, so they aren't necessarily an issue per se.

Base money created by the Fed is also a net financial asset. Why is Treasury debt being a net financial asset important? It's really not. What's important is that the government is taking away scarce real resources from the private sector.

The government can always service its debt, regardless of the size, at least from a monetary standpoint.

If it's willing to reform the Federal Reserve Act. Which it probably isn't. A government can become insolvent if it's tied its own hands monetarily. For example, Greece cannot service its debt through inflation. It's relinquished its authority to print Euros to the ECB under the Maastricht treaty. And so now it's defaulted.

Also, bond markets don’t control US interest rates. The FED controls interest rates by exercising its authority to meet its target interest rates, so interest rates are anchored directly to FED policy. I really can't see the FED raising interest rates in this environment.

The Fed controls the Fed Funds rate, and one part of the interest on bonds comes from the expected future path of short term interest rates. But there are other components to yields which markets do control; risk and term premia, for example.

 

[Norman]

The US government can create any amount of dollars it so desires. The issue is, at the end of the end of the day, if that spending will result in the necessary amounts of real assets retirees will need. Real assets being food, clothing, shelter, medical care, etc. that are necessary for retirees to maintain a comfortable retirement. As long as we have real goods and services, the funding side of the equation is simple: all the government has to do is cut checks. As long as the supply or quantity of real goods and services increases in tandem with the supply of money, there won't be an inflation problem. In the event the government spends more than the amount of goods and services being produced, we could have an inflationary risk. This is the ONLY risk for Social Security and entitlements. Congress can fund these programs into perpetuity if they so desire.

When the government creates money/spends, it does so by writing Treasury checks or crediting private bank accounts. It's not necessary to differentiate between the FED and the Treasury when discussing government spending, expenditures and receipts. The government doesn't have to borrow or tax to fund expenditures. Federal spending is essentially costless for the government. However, if we were still on a gold standard, the government would have to borrow and tax to make sure it could maintain a fixed exchange rate. This is no longer the case under a fiat system.

Deficits create net financial assets for the private sector, so they aren't necessarily an issue per se. The government can always service its debt, regardless of the size, at least from a monetary standpoint. Also, bond markets don’t control US interest rates. The FED controls interest rates by exercising its authority to meet its target interest rates, so interest rates are anchored directly to FED policy. I really can't see the FED raising interest rates in this environment.

Okay, so you believe the FED can just print money and pay the debt and all is fine. I do keep in mind that Inflation and money printing is A TAX! There is no free cake.

Here is where we differ, you think that if govt prints money and spends it the goods will automatically appear. However, I believe that the printed money bids on the SAME goods as the old money (which is a bit more logical), and thus prices will be bid up = inflation. The existing holder of money loses, and the government gains, so it's a tax.

Fed can not control the interest rates for two reasons:

1) Inflation. Fed needs to create inflation to keep the interest rates at 0%. Once the inflation actually appears, the rates will raise and FED is powerless to do anything about it. (Of course the low interest rates are IMO very damaging policy and is why you are in this mess - without them there would be more saving and less spending).

2) As the debt increases and presidents go on these crazy anti debt paying talks the rates will raise. Well I guess FED can just directly buy the debt. But the chinese may start to sell as inflation raises. Then the FED has to buy their debts as well. And then there is more inflation. After that all foreigners will abandon all treasuries and dollars. This is the hyperinflation argument.

 

[EdwardBaiamonte]

Once the inflation actually appears, the rates will raise and FED is powerless to do anything about it..

the Fed buys stuff to put money into the economy and to hold interest rates down. IF the money begins to cause inflation the Fed simply reverses the process by selling stuff.

The Fed is never powerless.

 

[Kimura]

The US government can create any amount of dollars it so desires. The issue is, at the end of the end of the day, if that spending will result in the necessary amounts of real assets retirees will need. Real assets being food, clothing, shelter, medical care, etc. that are necessary for retirees to maintain a comfortable retirement. As long as we have real goods and services, the funding side of the equation is simple: all the government has to do is cut checks. As long as the supply or quantity of real goods and services increases in tandem with the supply of money, there won't be an inflation problem. In the event the government spends more than the amount of goods and services being produced, we could have an inflationary risk. This is the ONLY risk for Social Security and entitlements. Congress can fund these programs into perpetuity if they so desire.

When the government creates money/spends, it does so by writing Treasury checks or crediting private bank accounts. It's not necessary to differentiate between the FED and the Treasury when discussing government spending, expenditures and receipts. The government doesn't have to borrow or tax to fund expenditures. Federal spending is essentially costless for the government. However, if we were still on a gold standard, the government would have to borrow and tax to make sure it could maintain a fixed exchange rate. This is no longer the case under a fiat system.

Whoa whoa, hold up. The Treasury can't write a cheque and deposit it at the Fed, which just creates money for it. That's possible under a fiduciary standard, but that's not what they actually do. Congress has given the Fed instrument independence, within very tight constraints (they're only allowed to buy/sell bonds in the open market, for example, they're not allowed to buy bonds directly from the Treasury), and instructed them to conduct policy in order to achieve price stability and maximum employment. The Fed interprets that as a 2% inflation target.

Right, the FED is precluded from buying directly from the Treasury by law. That's a good point.

In terms of funding for the Treasury, it's the same as if they were under a gold standard. The Treasury can only get their hands on more money through issuing T-securities. Obviously under a fiduciary standard they could just write a cheque and have the Fed back it for them, but they've specifically tied their own hands by making it illegal to do that since it invariably results in hyperinflations.

No, we don't operate like we're still on a gold standard, the US dollar is nonconvertible. We're on a fiat system, whereby modern money is noting more than state money, and taxation serves to create the necessary demand for state currencies.

For the domestic private sector, spending is dependent upon its ability to generate revenue or to borrow. The public sector (government sector) finances expenditures in its own money. This is a direct result of the monopoly status of the government as single supplier of the currency, which means the dollar is not some limited resource of government. It's more like a tax credit to its citizens which finds itself with a dollar-denominated liability. Therefore, the US government spending provides the public at large with that which is required to pay taxes (US dollars) The government isn't required to collect taxes in order to spend; however, it's domestic private sector which must earn those dollars to settle its tax obligations. The government, which includes the Treasury and FED, is never revenue constrained in its own currency.

Lastly, since the ultimate purpose of taxation is to crate demand for the currency, then tax collections can't happen before the government issues that which it demands for the payment of tax liabilities. Spending comes first and taxation come second. Here's another way to look at it: government spending finances the tax payments for the domestic private sector, not the other way around.

Deficits create net financial assets for the private sector, so they aren't necessarily an issue per se.

Base money created by the Fed is also a net financial asset. Why is Treasury debt being a net financial asset important? It's really not. What's important is that the government is taking away scarce real resources from the private sector.

Are you referring to crowding out?

The is the mistaken belief that deficits will ultimately cause an increase in interest rates. This is would result in more expensive credit (loans), which would then decrease the profitability of investment. This stems from the mistaken belief that the government must borrow in order to run a deficit ( this is incorrect, because the government is not revenue constrained and can spend by issuing currency). Allegedly, the end result of all this borrowing and spending results magically in reserves being removed from the banking system (this, too, is incorrect – borrowing would indeed remove reserves from the banking system, but the spending would have immediately added them once again). The shortage in reserves would then increase interest rates ( which, again, is incorrect – interest rates are maintained at a constant by the FED, as its part of its policy variable so to speak).

Government deficits actually decrease the pressure on interest rates, not increase them, since reserves are added to the banking system; there aren't any reserves being removed. The FED can counter this pressure utilizing its monetary policy to drain some of the excess reserves from the banking system. It can also let rates fall to zero. For example, by spending more than borrowing, Japan has created massive government deficits for years at interest rates at zero. This occurred without any type of crowding out.
Ostensibly, any type of taxing will crowd out private activity.

The government can always service its debt, regardless of the size, at least from a monetary standpoint.

If it's willing to reform the Federal Reserve Act. Which it probably isn't. A government can become insolvent if it's tied its own hands monetarily. For example, Greece cannot service its debt through inflation. It's relinquished its authority to print Euros to the ECB under the Maastricht treaty. And so now it's defaulted.

The only default which can occur in the Untied States is purely voluntary stemming from Congress. As you said pointed out, Greece (and all EU countries), have ceded monetary authority to the ECB. They are effectively operating under a pseudo-gold standard, whereby they have to operate under fixed budget constraints. This is a perfect example of why austerity is disastrous, as it will inevitably atrophy labor and capital.

Also, bond markets don’t control US interest rates. The FED controls interest rates by exercising its authority to meet its target interest rates, so interest rates are anchored directly to FED policy. I really can't see the FED raising interest rates in this environment.

The Fed controls the Fed Funds rate, and one part of the interest on bonds comes from the expected future path of short term interest rates. But there are other components to yields which markets do control; risk and term premia, for example.

The Fed operates under a type of corridor system and will only take action during certain time periods or intervals. In this way, the FED can set the actual target rate but will allow for some permutations and fluctuations within a certain axis between the IOR rate and discount rate.

 

[EdwardBaiamonte]

what is austerity and what is wrong with austerity??

 

[Kimura]

Okay, so you believe the FED can just print money and pay the debt and all is fine. I do keep in mind that Inflation and money printing is A TAX! There is no free cake.

Here is where we differ, you think that if govt prints money and spends it the goods will automatically appear. However, I believe that the printed money bids on the SAME goods as the old money (which is a bit more logical), and thus prices will be bid up = inflation. The existing holder of money loses, and the government gains, so it's a tax.

Government deficits can lead to inflation, I never said otherwise. My point is, the only way for this to occur, would be for the economy to be at full employment. This means that everyone who is able to work would be employed and there would be no resources (capital, labor, etc.) sitting in an idle capacity. I can't think of any examples where this comes to mind.

Fed can not control the interest rates for two reasons:

1) Inflation. Fed needs to create inflation to keep the interest rates at 0%. Once the inflation actually appears, the rates will raise and FED is powerless to do anything about it. (Of course the low interest rates are IMO very damaging policy and is why you are in this mess - without them there would be more saving and less spending).

2) As the debt increases and presidents go on these crazy anti debt paying talks the rates will raise. Well I guess FED can just directly buy the debt. But the chinese may start to sell as inflation raises. Then the FED has to buy their debts as well. And then there is more inflation. After that all foreigners will abandon all treasuries and dollars. This is the hyperinflation argument.

Interest rates are directly anchored to FED policy, regardless of what any bond vigilantes want. I responded to DSGE's post more about interest rates. If it requires further explanation, I can attempt to get into more detail.

Like we discussed, it doesn't matter if the Chinese shed US paper. The only way for them to reduce their dollar holdings is purchase goods and services produced by Americans.

Historically, hyperinflation occurs when the following things happen: industrial capacity is decimated by war (or civil war), high levels of corruption, ceding of monetary sovereignty (foreign denominated debt or a currency peg), a general breakdown of the domestic economy and tax system and a volatile political environment. These were the ingredients whether it was Austria, Weimar, Poland, Russia, China, Hungary, Greece, Argentina or Zimbabwe. Hypernflation is always and everywhere MUCH MORE than a monetary phenomenon. The United States doesn't meet any of the historical criteria for hyperinflation.

 

[Kimura]

what is austerity and what is wrong with austerity??

Austerity is simply a policy of deficit reduction by decreased spending. It's usually accomplished through a reduction of government expenditures which translates into gutting public services and benefits.

Austerity won't work in the US economy since budget surpluses, which one could define as tax revenues exceeding spending, actually destroy net financial assets. If these revenues aren't replaced by running a trade surplus, the compounding loss of net financial assets by the domestic private sector is impossible to maintain, thus resulting in credit bubbles, recessions, and eventually depression, which will eventually lead to deficit spending once again. The United States, both the economy and government, with its large output gap and trade deficit, demonstrated by its high levels of under-employment and unemployment, any policy of cutting the deficit with the ultimate goal of deficit reduction (austerity) will push the country into a severe recession or depression.

It's the height of fiscal irresponsibility to implement a deficit reduction agenda when we have this output gap and trade deficit. By its very definition, any such plan will remove net financial assets from the domestic private sector each and every year it's followed. If such a course of action is followed on a long enough time frame, declining financial assets will increase the output gap by significantly decreasing aggregate demand, thus resulting in the deterioration of both labor AND capital, which will reduce the real productive capacity of the US economy and the government's ability to maintain any positive deficit spending to create any lasting social value.

 

[EdwardBaiamonte]

Austerity won't work in the US economy since budget surpluses, which one could define as tax revenues exceeding spending, actually destroy net financial assets.

austerity or supply side economics works wonderfully since the less government spends or wastes the more the private sector can stimulatively spend to grow the economy in a sustainable way.

 

[Kimura]

Austerity won't work in the US economy since budget surpluses, which one could define as tax revenues exceeding spending, actually destroy net financial assets.

austerity or supply side economics works wonderfully since the less government spends or wastes the more the private sector can stimulatively spend to grow the economy in a sustainable way.

I mentioned some of the problems with Supply-Side earlier in the thread: wage stagnation, lower investment as a percentage of GDP, the effects being poorly distributed throughout the overall economy, etc.

Here's some data to make my points even clearer:

 

[EdwardBaiamonte]

We went over some of the problems with supply-side earlier in the thread: wage stagnation,

too stupid!! supply side capitalism raises wages and our standard of living fastest of all. Did the libturd happen to notice what happened to real wages when China switched to supply side capitalism or when Cubans moved to Florida or when East Germany went capitalist???


See why we say slow??

 

[Norman]

Government deficits can lead to inflation, I never said otherwise. My point is, the only way for this to occur, would be for the economy to be at full employment. This means that everyone who is able to work would be employed and there would be no resources (capital, labor, etc.) sitting in an idle capacity. I can't think of any examples where this comes to mind.

This is untrue both historically, and if you think about it just a bit. First of all what is full employment anyway? Everyone working 24 hours a day 7 days a week? There is no such thing.

Second, NOTHING mandates that there can't be inflation and high unemployment. Like I stated before, I can believe that instead of the money purchasing new goods it just bids up prices of existing goods. Afterall inflation is a tax, taken from one part of economy and given to a other. Cost for one, gain for some. I kinda agree that it leads to higher employment though if not for anything else, for the fact that wages, and benefits of being unemployed fall. Making it more worthwhile to become an employer or employee. It is an extremely unfair tax though.

Anyway my point is that, if you print money and just pay people not to work or work unproductively. You can perfectly well achieve inflation and even higher unemployment/lower GDP numbers. There is nothing stopping it.

Interest rates are directly anchored to FED policy, regardless of what any bond vigilantes want. I responded to DSGE's post more about interest rates. If it requires further explanation, I can attempt to get into more detail.

Like we discussed, it doesn't matter if the Chinese shed US paper. The only way for them to reduce their dollar holdings is purchase goods and services produced by Americans.

My point was that fed can't keep interest rates at 0% forever. Because of inflation. Otherwise the fed will have to be the only buyer, and then they have to buy all the corporate bonds etc. as well. Inflation, inflation, inflation. However so far they have been able to pull if off because:

1) Lots of dollars were destroyed as result of the crisis, thus the money printing is only countering deflation.
2) China and others are buying the excess dollars in exchange for goods. But what happens if they start to unload, and sell instead of buy?

The problem is the deficit of the government, which fed will have to finance indefinitely.

Historically, hyperinflation occurs when the following things happen: industrial capacity is decimated by war (or civil war), high levels of corruption, ceding of monetary sovereignty (foreign denominated debt or a currency peg), a general breakdown of the domestic economy and tax system and a volatile political environment. These were the ingredients whether it was Austria, Weimar, Poland, Russia, China, Hungary, Greece, Argentina or Zimbabwe. Hypernflation is always and everywhere MUCH MORE than a monetary phenomenon. The United States doesn't meet any of the historical criteria for hyperinflation.

Or just heavy printing of money. At some point the inflation, like all taxes lead to just higher unemployment and unstability. Too much of a good thing I guess.

It's a non-argument that US doesn't meet the historical criteria for inflation. I am interested if it meets the economic criteria. I don't think hyperinflation will happen, but high inflation for sure could.

 

[Kimura]

This is untrue both historically, and if you think about it just a bit. First of all what is full employment anyway? Everyone working 24 hours a day 7 days a week? There is no such thing.

Second, NOTHING mandates that there can't be inflation and high unemployment. Like I stated before, I can believe that instead of the money purchasing new goods it just bids up prices of existing goods. Afterall inflation is a tax, taken from one part of economy and given to a other. Cost for one, gain for some. I kinda agree that it leads to higher employment though if not for anything else, for the fact that wages, and benefits of being unemployed fall. Making it more worthwhile to become an employer or employee. It is an extremely unfair tax though.


Anyway my point is that, if you print money and just pay people not to work or work unproductively. You can perfectly well achieve inflation and even higher unemployment/lower GDP numbers. There is nothing stopping it.



My point was that fed can't keep interest rates at 0% forever. Because of inflation. Otherwise the fed will have to be the only buyer, and then they have to buy all the corporate bonds etc. as well. Inflation, inflation, inflation. However so far they have been able to pull if off because:

1) Lots of dollars were destroyed as result of the crisis, thus the money printing is only countering deflation.
2) China and others are buying the excess dollars in exchange for goods. But what happens if they start to unload, and sell instead of buy?

The problem is the deficit of the government, which fed will have to finance indefinitely.



Or just heavy printing of money. At some point the inflation, like all taxes lead to just higher unemployment and unstability. Too much of a good thing I guess.

It's a non-argument that US doesn't meet the historical criteria for inflation. I am interested if it meets the economic criteria. I don't think hyperinflation will happen, but high inflation for sure could.

The statement 'inflation is a tax' is polemic and unsubstantive. This claim would be correct if you assume people aren't that intelligent and don't understand that inflation occurs. If your statement was correct, it would mean the whole rational for markets wouldn't exist. People make choices with rational expectation going forward.

People innately understand that inflation occurs and plan according which means it's not theft. Individuals can invest in real assets, such as gold, silver or real estate if they're really worried about inflation, although stocks and bonds have historically performed MUCH better. As a matter of fact, inflation is a normal part of economic growth, and can be a positive since it gives people a reason not to hoard cash, which keeps money flowing in the economy as investments and consumption.

The FED can keep interest rates at zero for as long as they need to. Take a look at Japan, they have massive deficits, experienced deflation and have had a zero interest rate policy for years. By the way, I'm not suggesting a 20 year policy of zero interest rates. My point is, people make a big deal out of ZIRP, when it's required if the FED is going to engage in QE. This has to occur or else the FED wouldn't be able to maintain control of any positive interest rates since excess reserves would create competition in the interbank market and decrease interest rates.

Also, I can engage in a similar polemic: deflation is theft. For example, debts are fixed in nominal terms, so when wages and prices fall, debtors have a problem servicing their debts. People would ostensibly have to pay back their debts with a dollar having stronger purchasing power.

Again, so what if China unloads US Treasuries? The only way to rid themselves of dollar holdings is purchase real goods and services produced by Americans. By the way, China has increased in their purchase of Treasuries. As a matter of fact, most bond auctions are oversubscribed, meaning there's more buyers than available paper.

 

[EdwardBaiamonte]

People innately understand that inflation occurs and plan according which means it's not theft.

too stupid but 100% liberal. Most people have no idea what inflation is and 85% have no idea what to do to protect themselves from it!. It is in fact a hidden tax or theft that distorts the economy, reduces growth, and enables corrupt politicians. It is also the reason HItler came to power!! Stands to reason that a libturd would support it!!

 

[Kimura]

People innately understand that inflation occurs and plan according which means it's not theft.

too stupid but 100% liberal. Most people have no idea what inflation is and 85% have no idea what to do to protect themselves from it!. It is in fact a hidden tax or theft that distorts the economy, reduces growth, and enables corrupt politicians. It is also the reason Hitler came to power!! Stands to reason that a libturd would support it!!

Inflation occurs in a perfectly healthy economy. In point of fact, since 1913, when the FED came into existence, inflation in the US was at 3.5% per year on average. People make this sound like is some sort of travesty, but the 1900's was a period of the greatest wealth creation and economic expansion the world has ever seen.

The hyperinflation of Weimar Germany was a different animal. The country had its industrial capacity destroyed by war and had it debts denominated in Sterling. In other words, the more Germany printed money, it wasn't being off-put by a supply of goods and services, which is what caused hyperinflation.

Get this through your head: hyperinflation is a completely different animal than inflation. Hyperinflation is a chaotic economic progression and breakdown crisis which results in a total rejection of the currency.

 

[EdwardBaiamonte]

Inflation occurs in a perfectly healthy economy.

brain dead lunacy. Inflation occurs and distorts an economy only if libturds create it!!! Did you think the Girl Scouts created it??

1900's was a period of the greatest wealth creation and economic expansion the world has ever seen.

and ofocourse it would have been better still without liberal inflation

The hyperinflation of Weimar Germany was a different animal.

dear once inflation is policy you can always create a little more and then a little more rather than tax a little more and a little more. IS that really over your head?? We live on a slippery slope as the current housing bubble and worldwide depression prove. The best policy is to simply make inflation illegal as there are no advantages other than to enable idiotic liberalism.

Get this through your head: hyperinflation is a completely different animal than inflation. Hyperinflation is a chaotic economic progression and breakdown crisis which results in a total rejection of the currency.

yes dear almost like the liberal housing bubble and Great Depression. The best policy is to simply outlaw liberal monetary policy!!