I was wondering if someone could give me a hand with this guys blog post -
he seems to think that the US Government is not Revenue Constrained -
And can basically print money forever with no downside - he is of the mind that even taxes are theoretically not necessary.
Also he thinks that the USA will never default…
http://pragcap.com/the-concept-of-vertical-and-horizontal-money-creation
Anyone got any thoughts on this?
Thanks
Redmond
It is not revenue constrained… until the dollar goes out of circulation. This is why spending should be attacked rather than taxes. Taxes only matter because they are spent.
So what would lead to the dollar to go out of circulation?
By this guys reaonsing, couldn’t the US Federal Government just pay off everyones debt?
That would be monetizing the debt - correct?
And he seems to claim that the US does not owe anyone any money - is this guy a monetarist?
Thanks.
If money inflates too quickly, people won’t want to use it. They’ll change currencies to Euros or Pesos (lol) but more likely gold. The trick is for the government to keep inflation low enough where its cost of forcing people to use it is low. If everyone just put up with inflation, then yeah the government has unconstrained revenue. But only because in effect everyone is putting up with state confiscation of private property.
This theory is known as Chartalism:
http://en.wikipedia.org/wiki/Chartalism
More information can also be found on this thread:
So effectively they are slowly stealing from us.
That is why the Canadian Government keeps inflation at 2% and it is considered a good thing.
So what is the benefit of this system? Simply that Governments can spend as much as they like? Taking into account Inflation?
And what is the point of a Federal Income tax, if the Money collected does not even pay for any of the programs, and could not ever even come close to paying for the programs?
Thanks.
Modern economists think that inflation is needed to keep pace with growth. They are terrified of deflation because they associate it with depressions. There is a lot of Austrian literature countering this assumption
Yeah the government can basically just print whatever money it needs, but its a balance game. If you print too much you’ll tick off people who hold and use dollars. Merchants (particularly foreign ones) won’t accept the depreciating USDs, and at least a black market will arise where exchanges take place in non-devaluing currencies.
No one method of extraction could account for all government expenditures. Control of the money supply is one way of getting the market to let go of resources. The state also simply appropriates things, like large amounts of land, or drafts people during war.
The reason they use so many methods is because its harder to see the full scope of their operations if we’re nickle-dimed a thousand times, versus if they did it all through inflation. If they did that, the monetary base would depreciate by 40%/year and it would be insanely obvious how large government expenditures were.
Modern economists think that inflation is needed to keep pace with growth. They are terrified of deflation because they associate it with depressions. There is a lot of Austrian literature countering this assumption
So this is why they have the large economic meetings and call for Austerity or spending together - right? They wish to inflate and deflate in unison so it seems like no one country is going down the tubes - at least in an obvious way.
I gather from my readings that the fear of deflation stems from the great depression and FDR’s misguided attempts to keep prices and wages high.
Funnily enough, I met an economist a few weeks ago who had no idea what caused inflation.
Me: what causes inflation
him: higher prices
me: what causes higher prices
him: inflation.
Basically he had no idea.
i’ll be back later gotta hit work.
Fractional reserve banking can’t be practiced on the free market. Banks make loans and have many customers, so their checks get distributed around amongst many banks. If Bank A had a higher reserve ratio than Bank B, when the Banks call in eachother’s checks, Bank B goes bust. So you need a central bank to keep the fractional reserve ratio about the same so that banks can inflate safely. There is probably some under the table deal between all major industrialized banks to keep reserve ratios at about the same rate…
The way money changes value affects the social order. If money supplies change randomly or naturally throughout the economy, today’s elite will lose if they don’t anticipate the change better than everyone else who can also adjust. If you inflate the economy through a central bank, you can choose who gets the money first and maintain the status quo. It would be harder to do this through deflation since you’d have to rob poor people directly.
I view inflation not only as a tax, but as sort of like running a race on a treadmill that keeps moving you back. People who aren’t invested in money aren’t pushed back, but folks who live paycheck to paycheck are.
So you need a central bank to keep the fractional reserve ratio about the same so that banks can inflate safely.
Interesting point - Canadian Banks have absolutely no reserve requirements. The can be leveraged 100% - What would I ask my banker? what are your cash reserves? I want to stump them.
We have 6 Major Banks in Canada + assorted credit unions etc.
I view inflation not only as a tax, but as sort of like running a race on a treadmill that keeps moving you back. People who aren’t invested in money aren’t pushed back, but folks who live paycheck to paycheck are.
Well here is another interesting point - as well, the current policy of the central banks has also had the effect of pushing investment into the Stock Market.
If someone has retired, and wants to get a return on their retirement account, they pretty much have only one choice - stocks - as all of the “safe” investments have a very low return - Prime + 1 or .5%
OUr governments deal with that second aspect by raising the minimum wage rate - “Adjust for cost of living increase”…
Just because they can doesn’t mean its a good idea. Reserves are kept in order to meet demand for withdrawls. Whether a reserve requirement is mandated or not, failing to have enough on hand to keep up with demand is a death sentence, even with nets like the FDIC.
It would be closer to the truth that they don’t want any counter-examples springing up anywhere that debunk their system in plain view for all the world to witness. It makes it less obvious that they are wrong if all others do the same and get the same lousy result. No pesky loose-ends like Austrians pointing out that x didn’t spend and turned out best.
You think you can just go to any business and ask about its practices? How exactly is that going to stump them even if they answer?
That may not be a good idea.
If you want to check the ‘reserve’ position of a particular bank then you could easily check the bank’s balance sheet. Alternatively if you wanted to check total ‘reserves’ for the banking system in Canada, then check the Bank of Canada’s balance sheet.
It would be closer to the truth that they don’t want any counter-examples springing up anywhere that debunk their system in plain view for all the world to witness. It makes it less obvious that they are wrong if all others do the same and get the same lousy result. No pesky loose-ends like Austrians pointing out that x didn’t spend and turned out best.
Another point to the Canadian experience - a the beginning of the latest bust, the conservative government was not going to spend any money on Stimulus - the Liberal and NDP(socialist/communist) parties screamed bloody murder…
A the latest G8 meeting(in Canada) Harper caled for global austerity in the G20… Obama said he would go along - we’ll see.
Harper is an economist - studied under Tom Flanagan.
Later, he would advance to work on the company’s computer systems. He took up post-secondary studies again at the University of Calgary, where he completed a Bachelor’s degree in economics. He later returned there to earn a Master’s degree in economics, completed in 1993.
Redmond