Baff wrote:It isn't simply a question of shifting numbers fom one column to another.
I require goods back in exchange.
Shift all the numbers you like, but if I don't get any goods back, I'll never lend to you again.
Bond traders are not and do not expect to be paid in goods.
Nunt wrote:The assumption you make here is that increased debts are the result of short term monetary policy by the fed. This is of course not true as many institutions and people besides the FED buy debt. China for example is sitting on a mountain of US government debt. This means that the US will have to levy taxes in the future to pay off these debts and interest to the Chinese. So yeah, the US taxpayers is burdened by excess government debt.
Not at all. The bonds that belong to the Chinese government are in the Federal Reserve. If China wants to cash in those bonds, they are shifted from the Chinese securities account at the Fed, and the equivalent dollars are placed in the Chinese current account. All this takes place in the United States - it does not shift abroad. And when China has those dollars, what will it do with them? It can sit on them, but if that's what it's going to do, it might as well keep the bonds. Or it can spend the money, which unless it is spent all at once (and if it did, perhaps as a deliberate attempt at inflation, there are ways we could prevent this) would not be a bad thing. The Chinese government do not have the capacity to create dollars - only the Federal Reserve has that. The US does not 'borrow' money from China.
Second, taxes and government debts don't decrease the money supply and do not prevent inflation. As the goal of government debts is of course not to take money out of circulation, but to spend money. Thus, taxes take money out of circulation, but immediatly bring it back into circuluation when the government spends the money. And as the US government spends everything and is not creating huge fiscal surplusses, the effect on the money supply is neutral.
Indeed, but Paradigm simply means in an operational sense, taxes destroy money - the government doesn't get anything when we pay tax. Instead the only real effect is on the taxpayer, whose spending capacity has fallen by the amount of taxation. This creates room for government spending without inflation.
By the way, it doesn't matter what the 'goal' of certain actions is. Yes, when politicians levy taxes and issue bonds, they think they are funding themselves. But the actual operational effects of such actions is quite different to what it is thought to be. And we can see how this misunderstanding can lead to confused policy; the mysterious ineffectiveness of quantitative easing is a very pertinent example.
Im sorry, but there is no free lunch. We can't have the government borrow money to buy everyone a car, shuffle some savings and checkings and nobody needs to pay the price for the cars.
Well if the people making the cars are prepared to accept dollars in exchange - as the Chinese are - then yes we can. But the point is the real cost of the car is the labour, capital, resources and time that went into its production and sale. The obsessive focus on money leads us to miss the real price of such goods - and the real potential that we often let go to waste for fear of 'insolvency'.
Social Libertarian/Authoritarian: -3.33