This was not me. Found somewhere else:
A core problem with our monetary system is that money created as credit, must be repaid with interest and yet no money was ever created to represent the interest that must be repaid. Said another way, money owed in the world always exceeds the money that exists, resulting in accelerated deflation and inevitable default should a save & repay psychology become dominant.
As consumers continue to deleverage and money continues bleeding overseas due to the USA’s trade imbalance, it is only deficit spending that can keep US deflation at bay. Why it stinks is that cash isn’t flowing through the right channels and people who don’t understand the mechanisms in play are blocking an increase of the debt ceiling.
Given the “interest dilemma”, net debt across sectors can only rise over time. The need to deficit spend is concentrating this into the government sector and creating some huge numbers that are freaking people out. we know the debt is really quite meaningless, it’s just a number representing the current cash in the system plus the rolling legacy factor of interest. The latter can ensure that net debt eventually rises to a level far beyond any capacity to ever repay but what people seem to fail to understand is that there isn’t any intention to repay it all, nor should there be. This is the state all around the world. All the major economies are posting big numbers and stabilizing one another, rolling debt indefinitely, just don’t try to pay it off! (Are you listening Europe?).
The Fed isn’t at war with Treasury. It’s not going to try to ‘bankrupt’ Treasury. Maybe it was an aim in the past, to bleed the country dry, but that it’s the case now. (The Fed IS the government). They are basically the same entity, separated by a thin paper wall that (unnecessarily) forces the Fed to engage Primary Dealers as middlemen when participating in bond auctions.
At some point, there needs to simply be a large debt cancellation to deal with the interest dilemma, no more complex than the flick of a pen. It could be done worldwide, we’d blink a few times, and nothing bad would happen. At the very least, official government debt should not include that owed to the domestic central bank. Either cancel it outright, or shift it to a different set of books because it’s irrelevant. Even better, calculate the legacy interest component of net debt and, while it’s concentrated in government hands and owed to the central bank, just cancel that component because it is logically impossible to repay and only causes disaster if any attempt is made to do so by politicians who don’t understand how the monetary system actually works (austerity).
Regarding the organic principal (and by that I mean principal exclusive of that extended to service legacy interest, in other words cash truly required to support stable prices under real economic growth), the only reason the govt brings it into the system as debt is because it wants to signal the market that it can withdraw said money in repayment (leading to elimination) at a later stage should inflation arise. It’s just a confidence trick, an accounting measure, nothing more.
With a few legislative changes, the government could simply hand out enough money to allow fuel deleverage of the private sector without recording it as debt. Net money supply would barely change while deleverage continued. Then, when the private sector decided to start borrowing again, expansion of the money supply would be controlled by taxation. Money pulled in through taxation would then be destroyed, in the same way as if it would have been eliminated if being used to service debt. There’s no difference here. One way records a number on a piece of paper (and freaks people out), the other does not.
Of course the story is different when govt bonds are being held by the private sector (not central banks), but that’s not what I’m talking about here. It’s not clever to allow an external entity to fund rolling of legacy interest debt as this allows the foreign sovereign to hold you over a barrel. Your only defense is M.A.D. The Fed knows this all too well, as do all the central banks, which is why they play so nice with one another and hammer the out-group. Only China threatens to throw a spanner in the works, but, so far, that’s all just bluff and bluster.
A core problem with our monetary system is that money created as credit, must be repaid with interest and yet no money was ever created to represent the interest that must be repaid. Said another way, money owed in the world always exceeds the money that exists, resulting in accelerated deflation and inevitable default should a save & repay psychology become dominant.
As consumers continue to deleverage and money continues bleeding overseas due to the USA’s trade imbalance, it is only deficit spending that can keep US deflation at bay. Why it stinks is that cash isn’t flowing through the right channels and people who don’t understand the mechanisms in play are blocking an increase of the debt ceiling.
Given the “interest dilemma”, net debt across sectors can only rise over time. The need to deficit spend is concentrating this into the government sector and creating some huge numbers that are freaking people out. we know the debt is really quite meaningless, it’s just a number representing the current cash in the system plus the rolling legacy factor of interest. The latter can ensure that net debt eventually rises to a level far beyond any capacity to ever repay but what people seem to fail to understand is that there isn’t any intention to repay it all, nor should there be. This is the state all around the world. All the major economies are posting big numbers and stabilizing one another, rolling debt indefinitely, just don’t try to pay it off! (Are you listening Europe?).
The Fed isn’t at war with Treasury. It’s not going to try to ‘bankrupt’ Treasury. Maybe it was an aim in the past, to bleed the country dry, but that it’s the case now. (The Fed IS the government). They are basically the same entity, separated by a thin paper wall that (unnecessarily) forces the Fed to engage Primary Dealers as middlemen when participating in bond auctions.
At some point, there needs to simply be a large debt cancellation to deal with the interest dilemma, no more complex than the flick of a pen. It could be done worldwide, we’d blink a few times, and nothing bad would happen. At the very least, official government debt should not include that owed to the domestic central bank. Either cancel it outright, or shift it to a different set of books because it’s irrelevant. Even better, calculate the legacy interest component of net debt and, while it’s concentrated in government hands and owed to the central bank, just cancel that component because it is logically impossible to repay and only causes disaster if any attempt is made to do so by politicians who don’t understand how the monetary system actually works (austerity).
Regarding the organic principal (and by that I mean principal exclusive of that extended to service legacy interest, in other words cash truly required to support stable prices under real economic growth), the only reason the govt brings it into the system as debt is because it wants to signal the market that it can withdraw said money in repayment (leading to elimination) at a later stage should inflation arise. It’s just a confidence trick, an accounting measure, nothing more.
With a few legislative changes, the government could simply hand out enough money to allow fuel deleverage of the private sector without recording it as debt. Net money supply would barely change while deleverage continued. Then, when the private sector decided to start borrowing again, expansion of the money supply would be controlled by taxation. Money pulled in through taxation would then be destroyed, in the same way as if it would have been eliminated if being used to service debt. There’s no difference here. One way records a number on a piece of paper (and freaks people out), the other does not.
Of course the story is different when govt bonds are being held by the private sector (not central banks), but that’s not what I’m talking about here. It’s not clever to allow an external entity to fund rolling of legacy interest debt as this allows the foreign sovereign to hold you over a barrel. Your only defense is M.A.D. The Fed knows this all too well, as do all the central banks, which is why they play so nice with one another and hammer the out-group. Only China threatens to throw a spanner in the works, but, so far, that’s all just bluff and bluster.
Bummer.
