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Fatal Flaw in Logic of the Crash Course?

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  • Mon, Feb 02, 2009 - 06:15am

    #1
    ds

    ds

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    Fatal Flaw in Logic of the Crash Course?

http://home.hiwaay.net/~becraft/FRS-myth.htm#hd25

"there is no force causing debt to grow continuously relative to the available
money supply. The current system is not inherently unstable."

Anyone care to comment on this article?

  • Mon, Feb 02, 2009 - 06:27am

    #2

    Sandman3369

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    Re: Fatal Flaw in Logic of the Crash Course?

.

  • Mon, Feb 02, 2009 - 06:27am

    #3

    Sandman3369

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    Re: Fatal Flaw in Logic of the Crash Course?

Excuse me, hefferdust.

  • Mon, Feb 02, 2009 - 06:44am

    #5

    Sandman3369

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    Re: Fatal Flaw in Logic of the Crash Course?

      If I have a credit card, the debt via interest continues to grow unless I pay it off.  Therefore, in a very simple example, everyones debt increases independent of the available money.

  • Mon, Feb 02, 2009 - 11:21am

    #6
    Crash

    Crash

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    Re: Fatal Flaw in Logic of the Crash Course?

This is the title of the article

Money and the Federal Reserve System:

Myth and Reality

G. Thomas Woodward
Specialist in Macroeconomics
Economics Division

July 31, 1996

Congressional Research Service Library
of Congress

CRS Report for Congress, No. 96-672
E

 

The following is G. Thomas Woodward’s current job:

 

Assistant Director for Tax Analysis

Photograph of G. Thomas WoodwardG.
Thomas Woodward joined CBO [congressional budget office] in 1998. He was previously with the
Congressional Research Service (CRS), where he specialized in fiscal,
monetary, and macroeconomic issues. Most recently, he headed the
Income, Financing, and Housing Section of CRS’s Economics Division. He
has also served as Chief Economist for the minority staff of the House
Budget Committee and as an economist with the General Accounting Office
(now the Government Accountability Office).

 

Can we safely assume he is a stooge writing what he is being told to write and getting paid a handsome sum for doing so?

 

here is another short biographical:

 

 

Biographical Profile
G. Thomas Woodward

Dr. Woodward is Specialist in Macroeconomics and Head of the
Income, Finance, and Housing Section of the Economics Division
of the Congressional Research Service, The Library of Congress,
where he has worked on issues related to macroeconomic policy
and financial institutions since 1982.

 

He received a B.A. from the College of Wooster (1974), and M.A.
(1976) and Ph.D. (1979) from Brown University.

From 1979 through 1982, he was an Economist in the Program Analysis
Division of the U.S. General Accounting Office. And during 1991-92
he was Chief Economist of the minority staff of the Committee
on the Budget, U.S. House of Representatives.

He has published papers on aspects of productivity growth, hyperinflation,
inflation-indexed securities, interest-bearing currency, debt
management, and government sponsored enterprises.

 

Am I being too harsh, only it doesn’t sound like he is too independant. Am I being too cynical in thinking that you don’t get to be Chief Economist of the minority staff of the Committee on the Budget by going against the grain of one’s superiors.

 

what a title anyway!

 

crash 

 

  • Mon, Feb 02, 2009 - 05:28pm

    #7

    SkylightMT

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    Re: Fatal Flaw in Logic of the Crash Course?

[quote=Sandman3369]      If I have a credit card, the debt via interest continues to grow unless I pay it off.  Therefore, in a very simple example, everyones debt increases independent of the available money.[/quote]

True-  but that is different from saying that debt MUST grow in order to maintain a functioning economy.

He’s not saying that lending doesn’t create money. Everyone agrees that it does. He’s saying that this creation of money through lending isn’t a fatal flaw that’s going to crash the whole system eventually.

  • Mon, Feb 02, 2009 - 05:50pm

    #8
    capesurvivor

    capesurvivor

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    Re: Fatal Flaw in Logic of the Crash Course?

Economics is not my strength but..is it possible for 2/3 of the U.S. economy to be financed by consumer purchases without requiring an increase in debt?

 

SG

  • Mon, Feb 02, 2009 - 06:08pm

    #9

    SkylightMT

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    Re: Fatal Flaw in Logic of the Crash Course?

[quote=capesurvivor]

Economics is not my strength but..is it possible for 2/3 of the U.S. economy to be financed by consumer purchases without requiring an increase in debt?

 

SG

[/quote]

I don’t see why that would REQUIRE an increase in debt (although in practice it certainly means there’s an increase in consumer debt). Our GDP must continue to grow, but it can also grow through consumers putting their money in savings (where the savings are then lent for investment and increased production). I don’t know that our economic system requires consumer purchases to constitute 2/3’s of the GDP, either, that’s just what is.

The argument that this guy is making is not that things are completely fubared, which they are, but whether that fubaredness is inherent in a particular critical aspect of our economic system, specifically, whether our system requires that debt continually increase to the point where it all must collapse, or whether the system would continue just fine if we stopped this insane love affair with increasing debt.

  • Mon, Feb 02, 2009 - 08:26pm

    #10

    Ray Hewitt

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    Re: Fatal Flaw in Logic of the Crash Course?

It is a long article and I didn’t have the patience to read it thoroughly. By skipping and skimming, I could get an idea where he is coming. Basically, he is saying we should trust the government and the Federal Reserve; they know what they are doing. Given his attitude and his credentials, I take that as a warning of what is to come. No matter how bad things get, they cannot be persuaded they are the problem.

  • Mon, Feb 02, 2009 - 08:35pm

    #11
    mred

    mred

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    Re: Fatal Flaw in Logic of the Crash Course?

The author’s argument hinges on the statement that when a bank pays a salary (or whatever cost of operations) it "spends the money into existence". This is patently false and absurd. A bank will not "spend money into existence" anymore than I can when I buy a piece of chewing gum. Whenever a loan payment is made to a bank, the principal part of the payment disappears, while the interest part continues to be part of the circulating money stock, and the bank spends it like anyone else. As long as a dollar is not repaid as a repayment of principal, it simply continues to circulate and accrue interest. Since all money stock is accruing interest, it must continue to grow to avoid a chain of defaults. Since no money is created unless as debt, then there you have your requirement of perpetual growth of total debt. Show me where money is created not as debt and I’ll retract my statements. But that is going to be hard as 100% debt-based money is how the system has been designed.

The same argument applies at the level of repayments to the Fed. 

One could have a field day demolishing the article, like with the stuff about the Fed being partly a government agency. That is a front, and a card that they play when it is convenient, like in this case. But when, say, Bloomberg put the FOIA request to find out about TARP recipients, then the Fed’s defense was simply: "we don’t need to comply, we are not a government agency." Just know this: The Fed is private in what matters: the collection of dividends by stockholders due to its day-to-day operations.

As they say: "it is difficult to understand something when one’s salary depends on not understanding it"

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