Former Federal Reserve Chairman Alan Greenspan on Sunday ruled out the chance of a US default following S&P's decision to downgrade America's credit rating.Gee, hoodathunkitt! The Zimbabwe-Weimar "solution." Of course, the very act of printing money to repay debts is a form of default, so I think that Greenspan's belief that the USA can print worthless paper and get away with it speaks pretty much for itself. [End Update]
"The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default" said Greenspan on NBC's Meet the Press
"What I think the S&P thing did was to hit a nerve that there's something basically bad going on, and it's hit the self-esteem of the United States, the psyche" said Greenspan.
One of the reoccurring themes from the Keynesians is that government spending and taxation do not have an opportunity cost. While it is true that Keynesians at times will say not to raise taxes during a recession/depression, nonetheless the Keynesian "Balanced-Budget Multiplier" holds that government spending is preferable to private investment/spending, so the more the government takes in taxes, the better off the economy will be.
(Obviously, this presents us with an interesting question: Why doesn't government confiscate ALL of our earnings and spend them, thus creating endless prosperity? If government spending has a larger "multiplier effect" than private spending, then why hold back?)
So, we now hear from the New York Times about the "truth about taxes." This is one of those editorials that pretty much exposes the mentality of the "elite" of this country, thinking that is utterly condescending and demonstrates absolutely no ability of people at the "Newspaper of Record" to comprehend the current economic crisis.
This is par for the course at the Grey Lady. During the New York City fiscal crisis of 1975, the NYT in both its news and editorial sections utterly failed to comprehend what was happening. (For all of its crusading against "financial fraud" and the like, the NYT had NOTHING to say about the illegal and criminally-fraudulent practices of the city to sell capital bonds in order to pay for previously-issued bonds. Thus, the NYT endorsed criminal fraud when it was being committed by its political friends.)
Investment? Tax away the returns. Declares the NYT:
At the same time, super-low tax rates for investment income should be ended. Capital gains are taxed at a top rate of 15 percent, compared with a top rate for wages and salary of 35 percent. Proponents argue that the lower rate is an incentive to invest, but research shows that it also encourages gaming of the system. Tax breaks that have outlived their purpose must be ended, starting with subsidies for the oil industry, which is making billions in profits.Let's deconstruct that one. Once again, the NYT is claiming that profits are bad for the economy (as opposed to losses in "alternative energy" that must be made up via subsidies.)
Yet, the ONLY way we will have an economic recovery, versus the constant financial bubbles that the Fed has been creating, is for firms to be able to be profitable in at least a semi-free market. In this country, the traditional energy industries of oil, natural gas, and coal can be profitable, yet these are the very targets of the NYT crowd, which is utterly delusional in its belief that we can create energy "alternatives" that will come close to our needs and subsidize our way to prosperity. That is not just wrong; it is sheer delusion.
Let's take on another whopper from the editorial:
To avoid across-the-board cuts, Congress must enact at least another $1.2 trillion in deficit reduction measures over the 10 years. For all of the talk of “big government,” there is no way to cut that much in discretionary programs without crippling basic functions. Lawmakers could eliminate the Federal Bureau of Investigation, Pell Grants, the Centers for Disease Control and Prevention, the National Institutes of Health and Head Start and still not cut $110 billion annually.Now, no one has called for elimination of those agencies, although it might not be bad to take a hard look at them. Perhaps we might start with the TSA, an agency that was enthusiastically endorsed by the NYT, and has proven not only to be incompetent, but also abuse to travelers. (Notice that the NYT never does deal with that abuse, as the people there -- like most Progressives, including Krugman -- believe that just the very creation of a government agency is "progress." If there is abuse and fraud within the favored organization, then the "solution" is "more training."
Anyway, the editorial itself provides a window into the thinking of modern Progressives, who believe that any expansion of the state into our lives is a good thing. The massive tax increases that the NYT demands, in the view of Progressives, would have ONLY positive effects. But, then, these are people who actually believe that we can destroy our existing energy industries, replace them with corn-based ethanol and windmills, and subsidize and tax our way to prosperity.
This isn't economics; it is foolishness.
62 comments:
Of course, these “progressives” actually believe we can tax and spend our way into prosperity, but only if the “right” people are in charge. The right people being themselves of course. Just tax those evil rich people who are hoarding all the cash and “invest” it in green technology, infrastructure, or other government boondoggles that it deems worthy. Of course, the wealthy already pay the overwhelming share of the tax burden in this country. The “progressives” always ignore facts like this.
All raising taxes will do is just give the reckless and spend thrift politicians more stuff to blow on wars and other nonsense. The new revenue will be spent and then some, probably raising the deficit and debt even more, even if you can manage chase down and soak up all that revenue. Raising taxes does not fix a spending problem.
Eliminating federal departments will save us much more than the NYT claims.
If anything, eliminating departments like Education, Labor, and Housing and Urban Development would save us hundreds of billions per year.
Check out this site. Some interesting proposals:
http://www.downsizinggovernment.org
Spending other people’s money always works right? Redistributing existing wealth while government takes a cut for its troubles produces more wealth right? Just like taking a bucket of water from the shallow end of the pool and dumping it into the deep end of the pool raises the water level, but make sure that bucket is big enough!
But wait!! MMT reminds us that we should really be urging the federal government not to reduce its deficit because by doing that they are taking away all our savings!!! Oh no!!!! If anything, the government should increase the deficit even more so I can have more savings!!
Progressives are like a broken record. Come to think of it, they use the same intellectually bankrupt faux arguments everywhere from man made global warming ("the science is settled" crap straight out of Alinsky hand book - aka if you repeat a lie over and over, people will start believing it) to economics (prosperity through taxation crap that has never worked anywhere in the world because it is contrary to human nature, thus cannot work).
This is the reason why I would like to see the U.S. split in to two countries: one that lives by free market principles, and the other by centrally controlled socialist system that progressives adore.
It would be interesting to see how many decades is the former ahead of the latter within a few short years.
Quote re energy:
In this country, the traditional energy industries of oil, natural gas, and coal can be profitable, yet these are the very targets of the NYT crowd, which is utterly delusional in its belief that we can create energy "alternatives" that will come close to our needs and subsidize our way to prosperity. That is not just wrong; it is sheer delusion.
To be fair, eventually we will have no choice but to seek alternative energy. The oil will run out, the gas will run out and the coal eventually will also run out.
The real argument is whether this transition process should be accelerated by government pushing it along, or whether it should run at it's own pace as price for scarce commodities gradually goes up thus creating a price incentive.
I saw Obama in today's address calling for a new stimulus. I thought that I was watching "Clueless."
Re: Tel,
"To be fair, eventually we will have no choice but to seek alternative energy. The oil will run out, the gas will run out and the coal eventually will also run out."
Sure. If and when that happens. Making it happen like the government and environmentalists want is a totally different matter, which will create economic dislocations and misery.
"Alan Greenspan is channeling the Chartelists! "
It is spelled "charlatist".
"The Zimbabwe-Weimar "solution." Of course, the very act of printing money to repay debts is a form of default, so I think that Greenspan's belief that the USA can print worthless paper and get away with it speaks pretty much for itself."
Really, you are dragging up the idiocy of Austrian predictions of hyperinflation? Still?
"Of course, the very act of printing money to repay debts is a form of default"
No, it isn't.
If that were so, then why have millions of bond holders since the 1930s accepted the Fed's money when the Fed has bought bonds in open market operations?
It's non sequitur time! First, let us deal with the earlier energy issue.
STATEMENT: Someday, oil, gas, and coal will run out.
THEREFORE, we need to pour heavy subsidies into things that don't work very well with hopes that a "crash program" will be able to re-do the laws of nature.
First, the demise of oil, gas, and coal have been greatly exaggerated. Jimmy Carter's signature Natural Gas Policy Act of 1978 was based on the belief that there would be no more natural gas available after...1990. Yeah, I'll be that those of you who heat and cook with gas are shocked that you have been running on empty air for two decades.
The whole business of identifying reserves has been a shifting thing for many years. Time after time, we are told that we are just about to run out when we find we are not.
Now, to the money part.
STATEMENT: Zimbabwe and the Weimar Republic printed money and had hyperinflation.
THEREFORE: Anyone who criticizes governments for printing money is claiming that hyperinflation AUTOMATICALLY follows.
No, if government prints enough of the stuff, hyperinflation will come about, but the very act of printing money debases it.
Of course, the Chartalists believe that government is magic, that by printing green paper, it can automatically create wealth, and that all wealth is the creation of the state. It is as though the state is a kind of god that simply can create by edict.
And, yes, I have corrected the spelling for "Chartalists," except that I believe they need to change their name to "Charlatanists."
I've been maintaining for years that if the public understood that the government PURPOSEFULLY dilutes the funny money supply (which is the sole cause of general price inflation) and PURPOSEFULLY takes on massive government debt because of the insane views of the Keynesians, they would be appalled. Ron Paul should not assume average people know that these policies aren't just a mysterious force of nature but are imposed upon us by nitwits who actually believe in them as the solution to problems (and not the cause of the problems) and that it's all really that simple.
Further, I think the "default through inflation" argument is an excellent argument for explaining the evil of both the Keynesian policies and the Keynesians themselves. Note how neither LK or AP Lerner can ever directly respond to the charge that paying debt with diluted funny money amounts to fraud and, in fact, is a form of default.
If the public would pay attention, the Keynesians' phony evasive weasel "responses" to the "default through inflation" argument are very educational.
"Of course, the Chartalists believe that government is magic, that by printing green paper, it can automatically create wealth, and that all wealth is the creation of the state."
Ah, yes, you drag up this old nonsense:
http://socialdemocracy21stcentury.blogspot.com/2011/05/william-l-anderson-flunks-keynesian.html
Government spending is a means by which the private sector can create wealth by increasing capacity utilization and using idle resources (including labour), just as private investment, bank credit, and payment of wages to workers by a business can create the private spending that does the same thing.
Government spending is a means by which the private sector can create wealth by increasing capacity utilization and using idle resources (including labour)
Thankfully, average people don't believe that "rubbish" (to coin a phrase). But they also don't understand that their overseers actually do believe it. Our job is to get average people to focus on the fact that their economic destruction is being purposefully inflicted upon them as an alleged cure by their "betters".
That's why I love the MMTers. Their proposals are so absurd and immoral while being so unambiguous. They are very helpful in getting average people to focus and say, "They really don't believe THAT, do they?"
Oh yes they do.
LK the fact that you don't understand or refuse to accept that currency debasement is a form of default should disqualify you from anything ore than being a Progressive citation source.
"LK the fact that you don't understand or refuse to accept that currency debasement is a form of default"
The blithe claim that money supply increases must - it must!! - result in inflation shows utter ignorance even of Austrian theory:
“the essence of inflation is not a general rise in prices but an increase in the supply of money, which in turns sets in motion a general increase in the prices of goods and services .... While increases in money supply (i.e., inflation) are likely to be revealed in general price increases, this need not always be the case. Prices are determined by real and monetary factors. Consequently, it can occur that if the real factors are pulling things in an opposite direction to monetary factors, no visible change in prices might take place. In other words, while money growth is buoyant – i.e., inflation is high – prices might display low increases.”
Frank Shostak, “Defining Inflation,” Mises Daily, March 6, 2002.
http://mises.org/daily/908
E.g., Japan did QE in the early 2000s but had deflation.
In the late 19th century, the UK experienced sustained price deflation from 1873–1896, but the actual broad money stock grew by about 1.3% a year, or over the entire period by about 33%.
"Thankfully, average people don't believe that "rubbish" (to coin a phrase). But they also don't understand that their overseers actually do believe it."
If that were turn, Ron Paul would have been elected president a long, long time ago.
Instead, he couldn't even get nominetd as Republican party candidate.
"If that were true"
Meanwhile the Austrians continue scratching their heads as to why rates continue their downward march in the face of S&P downgrade. Could it be that dreaded liquidity preference? No of course not because Krugman is the devil.
Also, when people want to store valuables they often use a safe deposit box. The negative real rates right now are more analogous with a fee for safe keeping than with a default.
@Anon 11:46AM
Which rates are you referring to please?
@LK
"Instead, he couldn't even get nominetd as Republican party candidate."
You do know that he was being sabotaged from the beginning by his own party, right? No one could even hear his message because of media blackouts and political interference. As an example, he met every single qualifier to be allowed in the debates and they did everything in their power to keep him out of the debates. If his message is so crazy then you would have thought they would have invited him so he could discredit not only himself but his ideology.
Aside from that this political system and government you keep defending is insidious. Perhaps you should pop open a newspaper (besides the nyt) or go outside and talk to people. Things are getting worse and it has been your economics at the helm for nearly a century.
Meanwhile the Austrians continue scratching their heads as to why rates continue their downward march in the face of S&P downgrade. Could it be that dreaded liquidity preference? No of course not because Krugman is the devil.
Huh? Austrians don't scratch their heads over this. S&P should have downgraded U.S. debt a long, long, long time ago. But hey, deficts don't matter to Keynesians, because rainbow-shitting unicorns will pay the bill for the greens the government prints. Rainbow-shitting unicorns just need to do the "Effectu Multiplieritsu Jutsu"!
Austrians understand that rates are being artificially suppressed by the size of the Fed’s balance sheet right now. If the Fed hadn’t been so accommodative over the past two years with all the QE, rates would surely be higher. In other words, in order to keep rates low, the Fed can just maintain the size of its balance sheet without actually engaging in more QE.
Now it’s certainly true that the fiasco in Europe and the selloff in the stock market have investors taking cover in U.S treasuries despite the downgrade. Keep in mind S&P is one of the three major rating agencies and that two of them still have U.S debt pegged AAA. Not to mention the U.S bond market is still the deepest and most liquid bond market in the world. So despite the downgrade and a weak currency, the U.S bond market continues to rally even today because really there are no other viable alternatives. At least this is what I believe the world market perceives.
How bout in 2008 when stocks sold off, the dollar rallied big time, remember? Well, this time around, when stocks sold off, the dollar barely budged and it was GOLD that rallied big time. I think that shows a fundamental breakdown in the dollar and the U.S bond market being the save haven trade. In other words, this time around investors are seeing gold as the safe trade and not the dollar. Interesting observation.
As time goes on, investors will likely get sick of these negative real rates and buy gold. I think what has happened in the past week is evidence of that.
Lord "Auto-Troll" Keynes is desperate:
The blithe claim that money supply increases must - it must!! - result in inflation shows utter ignorance even of Austrian theory
And this statement shows that LK is backed into a corner and will say anything to deflect criticism of his nonsensical ideas.
As anyone who has studied Austrian theory knows, LK's statement is completely false. The relationship between money supply increases and PRICE inflation is covered in detail in Rothbard's America's Great Depression. The relationship between money supply increases and MONEY inflation should be simple enough even for an Auto-Troll.
I repeat: in the late 19th century, the UK experienced sustained price deflation from 1873–1896, but the actual broad money stock grew by about 1.3% a year, or over the entire period by about 33%.
Just because the money supply increases, it does not automatically mean price inflation.
Am I missing something or LK is forgetting the fact that money was backed by gold in the period he mentions?
"Am I missing something or LK is forgetting the fact that money was backed by gold in the period he mentions? "
It wasn't all back by gold at all: that is rubbish.
You had a small gold base, with a massive stock of fiduciary media, unbacked by gold/silver:
Triffin (1985: 152) shows that in 1800 bank money or credit money probably constituted less than 33% of the money supply.
But by 1913 paper currency and bank deposits accounted for 90% of overall currency circulation in the world, and actual gold itself for not much more than 10%.
Even by 1850s/60s, paper currency and bank deposits were probably the majority of all money.
Try again.
Triffin, R. 1985. “Myth and Realities of the Gold Standard,” in B. Eichengreen and M. Flandreau (eds), The Gold Standard in Theory and History, Routledge, London and New York. 140–161.
LK fails to understand Austrian economics, yet again, and makes further asinine claims.
It is spelled "charlatist".
No, it's spelled chartalist, which is derived from chartalism.
Really, you are dragging up the idiocy of Austrian predictions of hyperinflation? Still?
No, by saying it's the Weimar solution, is to say that the "solution" is to just keep printing money.
I can't wait for all you MMTers to have your asses handed to you when the dollar does collapse. And I'll even predict that you will say "a broken clock is right twice a day" in response.
"Of course, the very act of printing money to repay debts is a form of default"
No, it isn't.
Yes, it is. If a lender lends money expecting to earn interest, then it is because they want increased purchasing power in the future. If you pay them back in money that does not enable them to make gains in purchasing power, because you counterfeited it, then it defeats the entire purpose of saving and lending in the first place. You have in principle defaulted in your obligation, but not nominally, because the lender is getting back the dollars promised.
If that were so, then why have millions of bond holders since the 1930s accepted the Fed's money when the Fed has bought bonds in open market operations
Because lenders can gain at the expense of the taxpayers despite their bonds being paid back with depreciated money. The costs are offloaded to all US dollar holders, and the gains are concentrated.
If the government could not offload the costs of inflation to others, and the costs of inflation were concentrated to potential lenders only, then the loans would not even be denominated is US dollars, but whatever currency the market process has resulted in.
You're arguing from ignorance. To base your claim on something you can't explain, is an argumentative fallacy.
"Of course, the Chartalists believe that government is magic, that by printing green paper, it can automatically create wealth, and that all wealth is the creation of the state."
Ah, yes, you drag up this old nonsense:
How does linking to a website full of economic fallacies and appeals to authority constitute a sound rebuttal? If people wanted to see verbal diarrhea, then they'd just go to Keynes directly.
LK:
Government spending is a means by which the private sector can create wealth by increasing capacity utilization and using idle resources (including labour), just as private investment, bank credit, and payment of wages to workers by a business can create the private spending that does the same thing.
That cannot increase production because government spending first consumes resources in the course of its spending. Any further acts of production that take place on the foundation of some special interest groups having more money in their pockets, can only at best make the economy break even (if the government are omniscient Gods who can know which resources should be put into action and which should be liquidated as manlinvestments that the consumers don't value), or, what actually takes place, it will only make incur losses in the economy.
The "idle resources" you claim should be used on the basis that they were produced at all and so they must be used in the future, should not be used in the way that the government wants them used if you correctly understood that in the run up boom phase, resources are squandered and invested in areas of the economy that are not sustainable because the consumers have not released enough real resources to make them sustainable.
The fact that you keep repeating the same long ago refuted Keynesian nonsense that as long as there exists fake dog poop making machines, that any idleness in such machines justifies governments to spend money hoping to target it only, is irrational pie in the sky nonsense. You just don't understand the nature of economic calculation.
Governments cannot know which resources should be liquidated and which should be sustained. Only the process of economic calculation can accomplish this. Even if the government did attempt to target its spending on sustaining fake dog poop making machines, that doesn't mean that they won't affect any other scarce resources that are COMPLIMENTARY to operating fake dog poop making machines, such as energy, plastics, fuel, materials, and any other complimentary resource needed to making fake dog poop a sustainable productive activity.
You Keynesian morons simply don't understand economics because you'r too busy trying to justify government spending money on spacial interest groups who have political pull. You're lapdogs, nothing more.
LK:
The blithe claim that money supply increases must - it must!! - result in inflation shows utter ignorance even of Austrian theory
Nobody here made that claim you lying, straw manning fool.
In the late 19th century, the UK experienced sustained price deflation from 1873–1896, but the actual broad money stock grew by about 1.3% a year, or over the entire period by about 33%.
The Austrian argument on prices and money supply is not that every money supply increase necessarily leads to rising prices. It's that the only explanation for a sustained general increase in prices is an increase in the supply of money.
Austrian economics is logic-based, not prediction-based. The fact that Austrian economists make predictions of time and place has nothing to do with Austrian economic theory proper.
Austrians can know that someone building a house thinking there are 50,000 bricks when in reality there are only 40,000 bricks, is going to eventually realize his errors and will eventually have to correct his actions, which is what a recession is all about. But, that doesn't mean the Austrian can predict when exactly the home builder will LEARN of his errors. That is something up to the individuals and their choices and their learning trajectories.
Keynesianism on the other hand does contain asinine counter-factual predictions like "if the government does not spend, then the economy will go into a deeper recession, and if they do spend, and the economy still goes deeper into recession, then it's because they didn't spend enough."
Keynesian economics isn't even wrong.
If that were turn, Ron Paul would have been elected president a long, long time ago.
False. It is not necessary to Roddis' argument that Paul be elected.
Just because the money supply increases, it does not automatically mean price inflation.
No Austrian has made that argument. It's the reverse. It's that if prices rise, then, barring a fall in supply, only an increase in the money supply can explain it.
It wasn't all back by gold at all: that is rubbish.
The fact that money was redeemable in specie is what makes a monetary standard a gold or commodity standard. That it wasn't 100% reserve does not mean that it wasn't a commodity standard. As long as the banking system promised to redeem paper notes in specie, it is a commodity standard.
Are you really this dense that you cannot even understand the meaning of a commodity standard?
"That it wasn't 100% reserve does not mean that it wasn't a commodity standard."
I never claimed it "wasn't a commodity standard".
Total red herring.
"The Austrian argument on prices and money supply is not that every money supply increase necessarily leads to rising prices. It's that the only explanation for a sustained general increase in prices is an increase in the supply of money. "
Bravo. Teach that to the igornamuses and "pop" Austrians ignorant of their own theory who inhabit this blog.
I never claimed it "wasn't a commodity standard".
I never claimed that you claimed it wasn't a commodity standard.
Total red herring.
You fallaciously implied that anything less than a 100% gold standard is not a gold standard. That is wrong.
Bravo. Teach that to the igornamuses and "pop" Austrians ignorant of their own theory who inhabit this blog.
They already know this, and more, and are spending their time educating your ignorant ass on Austrian economics on this blog, which is why you continue to post here, and why you continue to not understand Austrian economics because you're too busy trying to defend your absurd Keynesian worldview.
Wow, I just had take a moment to comment on LK's post above, because that was pure awesomeness. Take a look at the text just below the part that he bolded:
"In other words, while money growth is buoyant – i.e., inflation is high – prices might display low increases."
Frank Shostak is describing the difference between inflation, an increase in the money supply, and price increase. LK wants to define inflation as a general increase in prices rather than an increase in the money supply. In fact, a general increase in prices is one possible symptom of inflation, not the thing itself.
Re: Lord Keynes,
I repeat: in the late 19th century, the UK experienced sustained price deflation from 1873–1896, but the actual broad money stock grew by about 1.3% a year, or over the entire period by about 33%.
Equivocating a lot, LK?
Just because the money supply increases, it does not automatically mean price inflation.
It doesn't mean automatic price increases; price increases are only a result of monetary expansion but overall price increase is NOT inflation - the constant expansion of the monetary base is the inflation. Just because the UK's manufacturing base was productive enough and her trade was great enough to absorb the increase in the money stock does not mean there was NO inflation.
Re: Lord Keynes,
No, [the very act of printing money to repay debts] isn't [default].
If that were so, then why have millions of bond holders since the 1930s accepted the Fed's money when the Fed has bought bonds in open market operations?
Again with the non sequiturs?
Just because the Fed has found a few million suckers does not mean they haven't been defaulting by printing worthless paper. Whatever people decide to do does NOT change that reality.
Now, if you are holding bonds and want to have the company of fools for comfort, that is entirely up to YOU - it's your money, your funeral. I, instead, bought gold.
LK. I said debasement not price inflation. You should learn the prospective time effect differences.
Japan is structurally different than the US. Sorry.
Bob Murphy says that this Scott Sumner post explains Japan's QE and why it didn't lead to price inflation:
http://www.themoneyillusion.com/?p=9404
QE injections by the BOJ were followed by subsequent drops in the monetary base.
For the 55,138th time, you can't establish economic principles through the use of anecdotes.
Meanwhile Krugman is still scratching his head over the fact that he was completely wrong when he said if QE2 did not stimulate aggregate demand that commodities would not rise in price. There is no explanation for why he completely got that wrong, and it is even more ridiculous for people to listen to him call for QE3 when he was so wrong on QE2.
Krugman needs to stick to geography or whatever it was he specialized in and leave monetary econ to people who actually make accurate predictions. You know, the sort of people who were saying a housing boom was being created while Krugman was calling for cuts in the interest rate to make the boom even worse several years ago.
If the act of creating money to pay debts isn't default, and the implication that there is no opportunity cost to create billions or trillions out of thin air, then why doesn't every nation do this to pay off their bills?
Kind of like how fools like Krugman still believe in the broken window fallacy, why don't we just start going around to area towns and destroying stuff? After all, it will be good for the economy, just like Krugman said the Japanese earthquakes and floods were good!
"why doesn't every nation do this to pay off their bills?"
Because not every country is the United States. Greece will not be able to sell or buy its bonds back this way. The United States can because when push comes to shove bond holders know that it is a diversified and stable economy. The market also knows that the US is not just flooding the market with more currency (i.e. Weimar Republic), but plans to sell back those bonds to shrink the money supply when inflation does become an issue (albeit at a higher interest rate).
And Krugman has addressed both monetary inflation and price inflation and shown how in a liquidity trap an expansion of printed money does not lead to an expansion of the monetary base or price inflation (http://krugman.blogs.nytimes.com/2011/05/12/send-in-the-cranks/)
It seems like Austrians love a market until they hit a market they don't agree with - like the bond market.
With alaskaman, we now have Troll #87 who has no clue regarding even basic Austrian concepts.
The statists are hopeless. We can declare victory.
Exactly. America is living off of its past, when it had far less debt and a much stronger economy, not to mention gold backing up until a few decades ago. That is rapidly changing, as public statements from the Chinese and others demonstrate.
Get back to me when Krugman addresses how completely wrong he was about commodity prices not increasing if QE2 did not stimulate demand. Otherwise, I won't take his claims to keep printing more and more money and the implications that brings seriously until he can explain how he was so clueless.
"The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default" said Greenspan on NBC's Meet the Press
Wouldn't this, by definition cause inflation? Why not print money and retire all of the $14 billion. Then blame the rising prices on big oil and greedy capitalists?
I should have said $14 trillion. I was off By $13.9 trillion. Perhaps I should get a job with the US Treasury or the Office of Budget Management.
"Just because the Fed has found a few million suckers does not mean they haven't been defaulting by printing worthless paper. Whatever people decide to do does NOT change that reality."
It isn't "worthless" paper, idiot: the purchasing power of money either created by the Fed or covered by taxes is real, and given most of the time the coupon rates on bonds are over and above the inflation rate, you get a real return.
"QE injections by the BOJ were followed by subsequent drops in the monetary base.
And the Fed can drain the excess reserves from the systems, just as eaisly as teh BOj did.
For the 55,138th time, you can't establish economic principles through the use of anecdotes.
Anecdotes? You dont know the meaning of the word.
An anecdote is:
1. a short account of a particular incident or event, especially of an interesting or amusing nature.
2. a short, obscure historical or biographical account.
The information above about Japan's inflation rate and money supply growth is publicly available data from the BOJ and other sources: it is not an "anecdote," you total idiot.
If what I have said is an "anecdote," then everything you say would also count as an anecdote too.
@LK "the purchasing power of money either created by the Fed or covered by taxes is real"
Is that because they say so? Is that why gold is over $1700 when less than 10 years ago an ounce was around $350?
"Is that because they say so? Is that why gold is over $1700 when less than 10 years ago an ounce was around $350? "
A red herring and irrelevant to what I said.
The purchasing power of money either created by the Fed or given back to bold holders when it is covered by taxes is real, and they in almost all cases get a real return. If the inflation goes above coupon rates/yields, invetsors arefree to not buy bonds or sell them just like any other asset.
As for gold, the price of a commodity held as an asset can crash overnight.
LK said "As for gold, the price of a commodity held as an asset can crash overnight."
And there is the source of your problem. You believe gold is just a commodity ignoring 6,000 years of history whereby gold is and has been considered money.
I suppose history is wrong and you in your omnipotent wisdom are right.
"You believe gold is just a commodity ignoring 6,000 years of history whereby gold is and has been considered money. "
LOL.. anatomically modern humans are about 200,000 years ago. The earliest use of gold as a monetary standard is about 2000 BC in Mesopotamia - a flash in the pan from the perspective of human history.
You also commit the fallacy called the "appeal to history":
"The second type of appeal to history is committed when it is argued that because something has been done a particular way in the past, it ought to be done that way in the future. This is the normative appeal to history fallacy, the appeal to tradition. The way that things have always been done is not necessarily the best way to do them. It may be that circumstances have changed, and that what used to be best practice is no longer. Alternatively, it may be that people have been consistently getting it wrong in the past."
http://www.criticalthinking.org.uk/unit2/fundamentals/logicalfallacies/appealtohistory/
You might as well try and defend the geocentric theory by complaining:
You believe the sun is at the centre of the solar system by ignoring 100,000 years of history when people thought the sun actually moved!!
I suppose history is wrong about the geocentric theory and you in your omnipotent wisdom are right!
Learn some basic logic.
Since the Keynesian ruse is atheoretical and is built upon nothing but misleading historical anecdotes, it is fundamentally a phony "appeal to history".
Your point is 4,000 vs 6,000? Seriously, you miss the point.
And in this context LK, fiat currency is the epitome of "flash in the pan". Until a better discipline and substitute is achieved, the masses will gravitate to gold as historical money when confidence is lost in government substitutes. It is unfolding before your eyes yet you are blind because of your statist prism.
I committed no fallacy of "appeal to history" you incorrectly inferred. I referenced history to illustrate that gold is not merely a commodity as you asserted but in fact is money and is acting as money in the current environment.
Your reference to the sun and solar system is an amateurish red herring. Spare me
Tell you what LK, why don't you put all your money in 30 yr Treasury Bonds to show your support for the government you love so much. It should work out great for you.
It matters not one wit that (1) fiat money is recent or (2) that gold is also relatively recent from the perspective of 200,000 years of human history. What we use as money must be defended on other arguments, not some lazy appeal to history.
This like saying that because antibotic treatment of infectious diseases has only been used for about 100 years, it can't last, and we must go back to witchdoctors, because it has 20,000 years of history behind it.
"I referenced history to illustrate that gold is not merely a commodity as you asserted but in fact is money and is acting as money in the current environment. "
It is not being used as money: it is being used as a commodity investment, something you hold in your portfolio as an asset and investment.
Gold is NOT being used today as (1) means of payment or (2) medium of exchange, the two major characterstics of money.
LK are you not capable of reading? No appeal, statement of fact for reference.
It is being used as a store of value. You conveniently forgot that element. And stop it with your ridiculous and lazy red herrings.
@Bob Your statement is quite sweeping. Is the wiki summary of Keynesian economics inaccurate? It states:
"Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the public sector, including monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle."
It seems to me that both schools of thought, Keynesians and Austrians, use anecdotal examples to support their points. I believe if you were to dismiss one in their use of anecdotes alone then you must dismiss both.
Fundamentally the difference is Austrians do not believe microeconomic actions ever lead to negative macroeconomic outcomes. Or perhaps more appropriately negative macroeconomic outcomes are the direct result of poor microeconomic decisions. Not only that but due to the nature of the problems state intervention with the aim of improving the effects of said outcomes are ultimately futile at best or destructive at worst.
Keynesians on the other hand believe that microeconomic decisions, however enlightened, can lead to negative macroeconomic outcomes which can be rectified with state action. The liquidity trap often invoked by Krugman (and often refuted by Austrians) is an example whereby a sudden preference for savings over spending leads to a demand shock that cripples economic activity and potentially leads to self-feeding recession. Obviously saving is a microeconomic action and recession is a negative macroeconomic outcome. Just for completeness, I believe the (very basic) Austrian counter is any such recession is necessary to allow for real economic growth from the resulting savings.
In any event, my point is neither school can be so easily dismissed by logical fallacy. There is simply a fundamental contention around the role of the state. Keynesians believe the state can be a positive economic actor and Austrians not only believe such state action is misguided but results in an undue infringment of individual sovereignty.
So other than Austrians seem to disfavor using numbers in economic explanations, does that pretty well cover the high-level waterfront?
@LK
Other than 'because they say so' and because I personally know that if I attempt to trade with any other form of 'money' I will go to jail, you have not provided the source of this power.
Also, since citizens cannot create their own wealth out of thin air and also cannot print their own money, then is reasons that all money wealth originated with the government which obviously is not true.
Please explain the power!
In an unrelated matter, I would appreciate assistance if anyone can provide it:
In an argument with a friend who is a progressive and a defender of Keynesianism, he claimed that what Volcker did to stem inflation in early 1980s (triggering the recession of 1982-3) was Keynesian in nature. I claimed that he is wrong because the action was pure example of monetarism - naturally opposed to the fiscal policy preference of Keynesianism - therefore he is wrong.
Who is right? Thanks guys.
Volcker's polcies at the Fed from 1979-1982 were quasi-monetarist in nature, in that he attempted to target money stock growth rates, and gave up direct targetting of the federal funds rate (letting it "float", as it were).
This certainly wasn't Keynesianism.
Nor was it pure monetarism either, since the monetarists wanted a steady money growth rate rule.
More here:
http://socialdemocracy21stcentury.blogspot.com/2011/02/reaganomics-analysis.html
Re: Lord Keynes,
"It isn't 'worthless' paper, idiot [does this mean you don't love me anymore, LK???]: the purchasing power of money either created by the Fed or covered by taxes is real, and given most of the time the coupon rates on bonds are over and above the inflation rate, you get a real return."
Makes one wonder if you subscribe to the intrinsic value theory.
You're not much of a financial expert either, LK. The return on bonds is DISMAL; people invest in them because their return is just a tad WORSE than the REPORTED inflation rate, albeit a tad better than having the money stuffed under a mattress. But bonds have ALWAYS underperfomed when adjusting for PP or gold.
If you want to be a sucker, BE MY GUEST - it's your money.
We’re having an interesting discussion on the wonders of AP Lerner today on Bob Murphy’s blog:
http://consultingbyrpm.com/blog/2011/08/free-advice-that-was-totally-worth-the-price.html
The following thread is interesting, especially Major_Freedom’s explanation of the origin of the value of funny money:
http://consultingbyrpm.com/blog/2011/08/free-advice-that-was-totally-worth-the-price.html#comment-21969
Fundamentally the difference is Austrians do not believe microeconomic actions ever lead to negative macroeconomic outcomes. Or perhaps more appropriately negative macroeconomic outcomes are the direct result of poor microeconomic decisions.
Personally (so LK doesn't go off citing Hayek from1923) I don't think there is such a "thing" as "macro" other than as an accumulation of individual transactions. The sum is equal merely to its components. There is no metamorphosis of individual transactions into something completely different at the “macro” level. The concept of “macro” is a baseless construct employed to fool the weak-minded.
Further, the entire Keynesian narrative (anecdote) is phony. The problems of unemployment in the 1930s were not caused by the free market. You had the creation of the funny money Fed in 1913 which funded the US entry into the Euro-slaughter fest of 1914-1918 and the Euro countries going off gold. You had massive price inflation in the US followed by inevitable deflation in 1920. You had Britain trying to go back on a gold-exchange standard at a foolishly unrealistic old par value and the US Fed trying to solve that problem.
Further, no discussion of the New Deal is complete without understanding that it (in the form of the NRA) was an attempt by the giant corporations to control the economy and eliminate competition, just as the Federal Reserve was a power grab by the giant banks. This was all going on simultaneously in the early New Deal. This kind of stuff would clearly result in unemployment and misdirection of resources:
In the NRA, we find that U.S. Steel and Bethlehem Steel effectively controlled the whole industry by virtue of their votes in the industrial codes; of a total of 1428 votes, these two companies alone were allowed a total of 671 votes, or 47.2 per cent, perilously close to outright control and with undoubted ability to find an ally among the smaller but still significant companies. @ page 121:
http://www.voltairenet.org/IMG/pdf/Sutton_Wall_Street_and_FDR.pdf
Totally out of context, Keynes announces that the problems of unemployment are the result of natural free market equilibrium. As they say, “rubbish”.
Alternatively, YOU PROVE THERE IS SUCH A “THING” AS MACRO. Go for it. I’m holding my breath.
Two real gems from today:
http://i.imgur.com/wAoMv.jpg
http://i.imgur.com/6ICIX.jpg
(Obviously, this presents us with an interesting question: Why doesn't government confiscate ALL of our earnings and spend them, thus creating endless prosperity? If government spending has a larger "multiplier effect" than private spending, then why hold back?)
This is the plan. It's just not politically wise to say so at this time.
Mike Cheel:
Those links are excellent.
What a coincidence. It’s Nagasaki day and LK calls me a “total idiot”.
Let’s discuss James F. Byrnes.
He had long been friends with Franklin D. Roosevelt, whom he supported for the Democratic nomination in 1932, and made himself the President's spokesman on the Senate floor, where he guided much of the early New Deal legislation to passage. He won easy reelection in 1936, promising:
"I admit I am a New Dealer, and if [the New Deal] takes money from the few who have controlled the country and gives it back to the average man, I am going to Washington to help the President work for the people of South Carolina and the country."
http://en.wikipedia.org/wiki/James_F._Byrnes
Byrnes had also accepted a position on the interim committee which had control over the policy regarding the atom bomb, and therefore, in April, 1945 became Truman’s main foreign policy advisor, and especially the advisor on the use of the atomic bomb. It was Byrnes who encouraged Truman to postpone the Potsdam Conference and his meeting with Stalin until they could know, at the conference, if the atomic bomb was successfully tested. While at the Potsdam Conference the experiments proved successful and Truman advised Stalin that a new massively destructive weapon was now available to America, which Byrnes hoped would make Stalin back off from any excessive demands or activity in the post-war period.
Truman secretly gave the orders on July 25, 1945 that the bombs would be dropped in August while he was to be in route back to America. On July 26, he issued the Potsdam Proclamation, or ultimatum, to Japan to surrender, leaving in place the unconditional surrender policy, thereby causing both Truman and Byrnes to believe that the terms would not be accepted by Japan.
The conclusion drawn unmistakably from the evidence presented, is that Byrnes is the man who convinced Truman to keep the unconditional surrender policy and not accept Japan’s surrender so that the bombs could actually be dropped thereby demonstrating to the Russians that America had a new forceful leader in place, a "new sheriff in Dodge" who, unlike Roosevelt, was going to be tough with the Russians on foreign policy and that the Russians needed to "back off" during what would become known as the "Cold War."
http://www.lewrockwell.com/orig2/denson7.html
It is no coincidence that the people who dropped atomic bombs for the purpose of slaughtering civilians as Japan was attempting to surrender were New Dealers.
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