- 11 Jul 2020 02:24
#15106640
The current Mainstream theories of economics are based on assumptions not observations of economic history. Many of these assumptions are false. It is claimed that they are good enough, but the predictions based on them are always wrong. Therefore, they are not *good enough*.
Inflation like the one in the 1970s is caused by a shortage of something that people must buy, something like oil or food. Historically, it doesn't matter how much money there is, if the crop fails then food prices rise. No money needs to be added for the price of food to rise when the harvest is 50% of normal.
Hyperinflation is only possible if the Gov. keeps adding/printing money to buy something that is in short supply. In the 20s Germany did this to buy gold that they had to buy to pay the Allies the reparations they demanded. In Zimbabwe the Gov. was buying food when the harvest was too small.
. . . If you will stop and think about it, it is obvious that Hyperinflation is only possible if the Gov. keeps printing bigger and bigger money (Marks) bills.
. . . So, hyperinflation is always a choice of the Gov.. To avoid it all the gov. needs to do is stop printing bigger bills.
The doom sayers will tell you that if the US Gov. keeps running a deficit than someday the hammer will fall and you will see hyperinflation. They are just trying to scare you.
The facts are different.
1] In 1981 when Reagan became Pres. the national debt was right at $1T. Now it is over $25T. Almost all of that debt is the result of actions take by the Repub and Repud Party leaders. They passed and signed the budgets that added to the debt. Their predictions that tax cuts for the job creators would pay for themselves never actually did. They always added to the deficit and then the debt.
2] At this point with $25T in bonds and several $T in cash and bank deposits there is plenty of dollars in the world to have a lot of inflation if there is a shortage of something people must buy, or maybe even hyperinflation.
3] The trigger will be a shortage. It will NOT be a decision by some rich people to destroy the value of the dollars that they currently hold. They are rich because they have a lot of dollars and therefore they don't want their dollars to become valueless.
The UK, aka England, has had a national debt since 1694, i.e. for 325 years. The size of the debt in pounds has kept going up. The ratio of debt/GDP has gone down because of population growth and wealth growth which has made the GDP get bigger. There has also been some inflation, BUT experts want there to be inflation of around 2%/yr. That is the target rate for almost all central banks in the world. This has been so for decades. Today (before the covid crisis) inflation was between -1% and 1% in most nations.
Japan has a debt/GDP ratio of 240%, or so. This is over double the point at which experts expect to see a crash. In the EU the treaty sets the max. debt/GDP ratio at 60%. 240% is 4 times 60%. And still Japan can sell all the bonds it wants to sell.
. . . Also, the Bank of Japan holds about 40% of the Japanese bonds that exist. Experts will tell you that it is very much like printing money when the central bank hold the nations bonds. So, the BoJ holds 40% of the bonds and the debt/GDP ratio is 240%, and yet this is not causing any problems. Inflation is around 0%, the yen is strong, bond sales are over subscribed, etc.
The fact is that savings by people, comp. or foreigners takes dollars out of the market and banks don't lend them back into the market (they create new dollars with every loan). Taking dollars out of the market by taxation or by saving them reduces someone's income, and then someone else's income, etc. This process reduces the GDP measured. If the gov. does NOT replace the dollars saved (by everyone) then the people need to borrow from banks enough to replace it to maintain the GDP with spending. Spending equals income. This increase in private debt is far less sustainable than rolling the Gov. national debt over (forever).
. . . Very soon the people can't make the next payment on their debt and this causes the banks to reduce lending and this starts a recession. This happens because loans are always spent and all spending adds to the GDP. Less lending => less spending => less GDP => recession or depression.
. . . Historically, the best way to end a recession is to start a war, because war requires massive deficit spending, It is pointed out that FDR didn't end the Depression, WWII did. This is true. IIRC, FDR balanced the budget in 1937or8, what this shows me is that FDR didn't have a big enough deficit. That only the excuse of war made it possible to pass budgets with large *enough* deficits to end the Depression.
Central banks target inflation rates of 2%, therefore inflation is "good". At least at the 2% level. So, don't be scared by the word inflation.
Actually, now that the world is off the gold standard, the national debt is also "good". Why? Because it can be rolled over forever, and because it represents assets that the people and comp. own. The people who have those assets don't want their assets to be taxed away, NO not theirs.
. . . When you think about it some facts add up.
1] You can't pay *off* your debt with money you have borrowed, the Gov. can't do it either.
2] The Gov. can't tax $25T from the poor people or the middle class either, because they don't have $25T.
3] The rich have the bonds but they will not let the Gov. tax $25T from them to pay themselves off. The Gov. might as well default on all the bonds, it is the same thing.
4] This leaves us 3 choices.
. . . a] Roll the debt over forever, by borrowing to pay the bonds as they come due.
. . . b] Have the Gov. create digital dollars and use them to pay off the bonds as they come due.
. . . c] Have the Fed. Res. buy the bonds that must be sold to pay other bonds as they come due. Because the Fed. Res. pays the Treasury 97% of its revenues, the Gov. can sustain this forever, with no problem. If the bonds are sold to the Fed. pay at a 1% rate then the actual rate is 0.003% after the Fed. gives 97% back to the Treasury.
Summery
The US national debt can *not* be paid off in the way the experts imply. Creating digital dollars is the only way to do it and it might cause inflation but can't cause higher taxes or spending cuts.
The national debt doesn't need to be paid off.
Deficits are good because they let the GDP grow without the growth of unsustainable private debt.
Inflation will happen when there are shortages of food or oil no matter how much money the Gov. is creating or not creating.
Hyperinflation will *only* happen if the Gov. chooses to make it happen.
.
Inflation like the one in the 1970s is caused by a shortage of something that people must buy, something like oil or food. Historically, it doesn't matter how much money there is, if the crop fails then food prices rise. No money needs to be added for the price of food to rise when the harvest is 50% of normal.
Hyperinflation is only possible if the Gov. keeps adding/printing money to buy something that is in short supply. In the 20s Germany did this to buy gold that they had to buy to pay the Allies the reparations they demanded. In Zimbabwe the Gov. was buying food when the harvest was too small.
. . . If you will stop and think about it, it is obvious that Hyperinflation is only possible if the Gov. keeps printing bigger and bigger money (Marks) bills.
. . . So, hyperinflation is always a choice of the Gov.. To avoid it all the gov. needs to do is stop printing bigger bills.
The doom sayers will tell you that if the US Gov. keeps running a deficit than someday the hammer will fall and you will see hyperinflation. They are just trying to scare you.
The facts are different.
1] In 1981 when Reagan became Pres. the national debt was right at $1T. Now it is over $25T. Almost all of that debt is the result of actions take by the Repub and Repud Party leaders. They passed and signed the budgets that added to the debt. Their predictions that tax cuts for the job creators would pay for themselves never actually did. They always added to the deficit and then the debt.
2] At this point with $25T in bonds and several $T in cash and bank deposits there is plenty of dollars in the world to have a lot of inflation if there is a shortage of something people must buy, or maybe even hyperinflation.
3] The trigger will be a shortage. It will NOT be a decision by some rich people to destroy the value of the dollars that they currently hold. They are rich because they have a lot of dollars and therefore they don't want their dollars to become valueless.
The UK, aka England, has had a national debt since 1694, i.e. for 325 years. The size of the debt in pounds has kept going up. The ratio of debt/GDP has gone down because of population growth and wealth growth which has made the GDP get bigger. There has also been some inflation, BUT experts want there to be inflation of around 2%/yr. That is the target rate for almost all central banks in the world. This has been so for decades. Today (before the covid crisis) inflation was between -1% and 1% in most nations.
Japan has a debt/GDP ratio of 240%, or so. This is over double the point at which experts expect to see a crash. In the EU the treaty sets the max. debt/GDP ratio at 60%. 240% is 4 times 60%. And still Japan can sell all the bonds it wants to sell.
. . . Also, the Bank of Japan holds about 40% of the Japanese bonds that exist. Experts will tell you that it is very much like printing money when the central bank hold the nations bonds. So, the BoJ holds 40% of the bonds and the debt/GDP ratio is 240%, and yet this is not causing any problems. Inflation is around 0%, the yen is strong, bond sales are over subscribed, etc.
The fact is that savings by people, comp. or foreigners takes dollars out of the market and banks don't lend them back into the market (they create new dollars with every loan). Taking dollars out of the market by taxation or by saving them reduces someone's income, and then someone else's income, etc. This process reduces the GDP measured. If the gov. does NOT replace the dollars saved (by everyone) then the people need to borrow from banks enough to replace it to maintain the GDP with spending. Spending equals income. This increase in private debt is far less sustainable than rolling the Gov. national debt over (forever).
. . . Very soon the people can't make the next payment on their debt and this causes the banks to reduce lending and this starts a recession. This happens because loans are always spent and all spending adds to the GDP. Less lending => less spending => less GDP => recession or depression.
. . . Historically, the best way to end a recession is to start a war, because war requires massive deficit spending, It is pointed out that FDR didn't end the Depression, WWII did. This is true. IIRC, FDR balanced the budget in 1937or8, what this shows me is that FDR didn't have a big enough deficit. That only the excuse of war made it possible to pass budgets with large *enough* deficits to end the Depression.
Central banks target inflation rates of 2%, therefore inflation is "good". At least at the 2% level. So, don't be scared by the word inflation.
Actually, now that the world is off the gold standard, the national debt is also "good". Why? Because it can be rolled over forever, and because it represents assets that the people and comp. own. The people who have those assets don't want their assets to be taxed away, NO not theirs.
. . . When you think about it some facts add up.
1] You can't pay *off* your debt with money you have borrowed, the Gov. can't do it either.
2] The Gov. can't tax $25T from the poor people or the middle class either, because they don't have $25T.
3] The rich have the bonds but they will not let the Gov. tax $25T from them to pay themselves off. The Gov. might as well default on all the bonds, it is the same thing.
4] This leaves us 3 choices.
. . . a] Roll the debt over forever, by borrowing to pay the bonds as they come due.
. . . b] Have the Gov. create digital dollars and use them to pay off the bonds as they come due.
. . . c] Have the Fed. Res. buy the bonds that must be sold to pay other bonds as they come due. Because the Fed. Res. pays the Treasury 97% of its revenues, the Gov. can sustain this forever, with no problem. If the bonds are sold to the Fed. pay at a 1% rate then the actual rate is 0.003% after the Fed. gives 97% back to the Treasury.
Summery
The US national debt can *not* be paid off in the way the experts imply. Creating digital dollars is the only way to do it and it might cause inflation but can't cause higher taxes or spending cuts.
The national debt doesn't need to be paid off.
Deficits are good because they let the GDP grow without the growth of unsustainable private debt.
Inflation will happen when there are shortages of food or oil no matter how much money the Gov. is creating or not creating.
Hyperinflation will *only* happen if the Gov. chooses to make it happen.
.