On Deficits And Debt-Financed Government

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DrKrbyLuv's picture
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On Deficits And Debt-Financed Government

I was shocked to find that Karl Denninger (Market Ticker) has made a 360 degree turn in an editorial.  In the past he has been adamantly against the U.S. issuing it's own money - citing inflation and such.  But now he seems to be on-board.  I thought it must be an April fools joke until I read his logic - he makes a great case.

The decreasing marginal productivity of new debt issuance  - complete article link

There is a good argument to be made that we are now in a place where we are getting negative GDP contribution from new debt issuance, as I have written on before.

IF this chart is accurate, then the gambit of politicians - that they will all be out of office before this blows sky-high (on the back of your children and grandchildren) will be proved inaccurate.

It will, in fact, blow up in their face - that is, they will not escape the consequence of their actions.

Worse, those consequences will not be simply political defeat, because the outcome will be the inability of The Federal Government to finance its operations. You're free to extrapolate "what comes next"; I can assure you it will not simply be peaceful acquiescence by the roughly 100 million Americans who will suddenly find that the government tit has run dry - without warning.

To put this in context you can look at the interest expense of The Federal Government. You will note that despite debt going up a lot in Fiscal 2009 the interest expense went down - a lot (about 15%.) But this year interest expense, if it tracks the five months thus far in the books, will rise from $383 billion to $434 billion, a 13% increase - almost erasing the "gains" from the zero interest-rate policy.

On September 30th 2009 the outstanding debt was $11.909 trillion dollars. That is an average interest coupon across the entire float of the public debt of 3.22%.

Now consider what happens if short rates go back to the 5% range - a historical reasonable point, and long rates go into the 7% range (a point that this chart's inverted head-and-shoulders, by the way, says is likely within the next two years):

Assuming Treasury continues to try to shove toward the short end of the curve, a strategy that exposes it to extreme amounts of rollover risk, the average coupon would likely rise to about 5.5%.

This would drive interest expense to $780 billion by September 2011.

Note that if historical averages hold, Treasury would take in roughly $1.2 trillion in personal income taxes. Interest expense would rise to consume approximately 2/3rds of that amount.  Let's further consider that interest expense would be about 80% of the entire budget deficit of fiscal 2011.  Two questions immediately arise from this data:

  1. Do our Congressfolk (and the Administration) really think they will expire of natural causes before the spiral that, on the present path, will come, appears and those 100 million angry and (more importantly) hungry Americans decide to issue them an invitation to dinner?
  2. Why are we debt-financing our government in the first place? Adding up the interest paid from 1988 to 2009 we find that $7.34 trillion of the $11.909 trillion, or sixty one percent, of our "debt" exists as a consequence of paying interest to private parties and foreign governments.

Consider the alternative. We have a $4.57 trillion "deficit" between interest and debt looking only at 1988 - 2009.  But from 1988 - 2009 we produced (GDP) approximately $210 trillion in net output.  We currently finance our "excess spending" through debt issuance.  What would happen if we instead decided to issue non-debt-backed currency from the Treasury directly into the economy?

That is, instead of selling Treasuries, what instead Treasury was to simply print dollars (backed by nothing more than Treasury's ability to tax down the road) and thus paid zero interest?

Well, that's easy to figure out. Since issuing currency is the definition of monetary inflation we can trivially compute the inflationary impact of printing the required $4.57 trillion in money to close the gap - in other words, for Treasury to simply issue and spend in the economy the net $4.57 trillion the government has instead paid in interest from the years 1988 to 2009.

The inflationary impact is 4.57 / 210 = or....2.18% - and not per year either. Rather, that's the total inflation as a consequence of this policy over the entire 22 year period of time!

Why is it that we are allowing debt merchants to "finance" our deficits?

We can stop this idiocy now, before it spirals out of control - and spiral out of control it will. It is highly unlikely that the current path will be able to be maintained until our children and grandchildren get the bill - rather, odds are that it will detonate within the next five years, resulting in the destruction of our society, political system, and civil order.

Or we can tell the debt merchants - that is, the banks - to get stuffed, and that we will not pay the so-called "existing debt." They will, in turn tell us they won't buy any future debt. We simply reply that we don't care, since we have another option - the spending of deficit dollars directly into the economy without issuing debt!

There are transition details that I will outline in future Tickers, and I assure you that the "debt merchants" (banks, including foreign central banks) will not like the implications of same.

Keep it coming Karl...you made my day...this needs to go viral!

Larry

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Re: On Deficits And Debt-Financed Government

Larry,

Believe it or not, I don't disagree.  I am still not convinced that this solution will be quite the savior that you envision but paying interest to a third party that creates our means of exchange out of thin air is insanity.

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Re: On Deficits And Debt-Financed Government

goes211 wrote:

...paying interest to a third party that creates our means of exchange out of thin air is insanity.

I totally agree...it's nuts!  When and if the American people figure out what government has allowed to happen there will be hell to pay.

Wright Patman prophetically said:

“When our Federal Government, that has the exclusive power to create money, creates that money and then goes into the open market and borrows it and pays interest for the use of its own money, it occurs to me that that is going too far. I have never yet had anyone who could, through the use of logic and reason, justify the Federal Government borrowing the use of its own money... I am saying to you in all sincerity, and with all the earnestness that I possess, it is absolutely wrong for the Government to issue interest-bearing obligations. It is not only wrong: it is extravagant. It is not only extravagant, it is wasteful. It is absolutely unnecessary.

I believe the time will come when people will demand that this be changed. I believe the time will come in this country when they will actually blame you and me and everyone else connected with this Congress for sitting idly by and permitting such an idiotic system to continue. I make that statement after years of study..."

Larry

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Re: On Deficits And Debt-Financed Government
DrKrbyLuv wrote:

I was shocked to find that Karl Denninger (Market Ticker) has made a 360 degree turn in an editorial.... 

Larry -

Great read.  Unfortunately, I don't think the average American is going to care to a degree of actionalble outrage until their Direct TV subscription is impacted.

Without trying to sound snarky - why does this only make sense to the CM.com "us"?

And a point of order - just the old submarine driver in me, but a 360 degree turn puts you right back on base course.  Surprised

Now a 180?

Right full rudder................

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Re: On Deficits And Debt-Financed Government

LOL, thanks Dogs...a 180 degree turn it is...right full rudder and full speed ahead!

Larry

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Re: On Deficits And Debt-Financed Government

Larry,

You left out this "little" line in your quote of KD's post

Yes, managed improperly such a path runs the risk of a hyperinflationary debacle similar to Weimar or Zimbabwe.

I hate to open this can of worms, but what has the government managed properly up until this point? I must admit that I'm very hazy on how this might be implemented, but even if hyperinflation wasn't a realistic concern, you can easily imagine that the banker's lobby would exploit such a fear to squash this reform. 

 

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Re: On Deficits And Debt-Financed Government

My longer term inklings and the revisit I had this morning in the NASA thread remind me of my conviction that this system will need to be fully "rebooted" before anything better will come along.

The people most marginalized here are the poor and as a result, they have the least ability to understand what is wrong and how to fix it for various reasons: no time, no computer, no internet, no education, etc. The inflation that we've experienced will also further plunder them.

When we speak of changing our monetary system, we are talking about overturning something that fundamentally has existed for 96+ years. Many nations don't even last this long - even ours is only ~twice as old as the FED. So I think reforming our monetary system will likely require full collapse or full revolution. The revolution is one of ideas, not blood, but it is a revolution nonetheless. My understanding is that revolutions typically only occur with the support of the lower class. Although it seems to shrink continuously, there still is a middle class in this country. I think of the "middle class" as more of a philosophy than simply of dollar income level. I define it as consisting of those who believe that their (brighter) future is largely in their hands and a product of their hard work and education. Most in the lower class have lost this philosophy altogether and given up hope. This loss of hope is why our current President was able to get elected with the campaign rhetoric he used.

 So then, a revolution of ideas would require the "middle class" (this is the role we fill, regardless of how much you're making) to educate and motivate the others to understand that they can have a brighter future if they focus their efforts on changing a few key things. The lower class has little to lose by trying something new and should be able to follow if the message is presented correctly. Obviously, the elites have the power, but they do not have the numbers and they certainly don't have ultimate control over resources, since the earth is finite and many workers are still required to exploit resources.

I've already mentioned on other threads the Sword of Damocles that the banks implicitly hold over the heads of our presidents. Although absolute proof might not be forthcoming, there are strong enough implications to scare an incoming President. Since the public is not demanding monetary reform, there really is little political incentive. Can we be surprised that nothing changes?

We are reaching a critical point rapidly in which the dollar is destroyed or society is destroyed by defaults and corrupt methods of wealth confiscation. There is no "solution" to this predicament, so the sooner we reshape things, the better. A new system is on they way, but we must choose to have input into its design and construction.

This was a great article and has been a good discussion, but ultimately, we need to focus on how to bring this issue to the forefront of the public's mind. It needn't be 100% commitment like Chris. I do my best to work some of these issues into my discussions with other people. I am shocked at the number of PhDs in the energy efficiency and economics fields that seem to have absolutely no concept of oil depletion. They are good people, but I believe their PhDs make them "lasers" not "shotguns." And the dollar system seems to make them lemmings rather than hawks.

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Re: On Deficits And Debt-Financed Government

Mike,

 

Brilliant post!

So I think reforming our monetary system will likely require full collapse or full revolution. The revolution is one of ideas, not blood, but it is a revolution nonetheless. My understanding is that revolutions typically only occur with the support of the lower class. Although it seems to shrink continuously, there still is a middle class in this country. I think of the "middle class" as more of a philosophy than simply of dollar income level. I define it as consisting of those who believe that their (brighter) future is largely in their hands and a product of their hard work and education. Most in the lower class have lost this philosophy altogether and given up hope. This loss of hope is why our current President was able to get elected with the campaign rhetoric he used.

We are reaching a critical point rapidly in which the dollar is destroyed or society is destroyed by defaults and corrupt methods of wealth confiscation. There is no "solution" to this predicament, so the sooner we reshape things, the better. A new system is on they way, but we must choose to have input into its design and construction.

What scares me and what i believe will be the case is that the future of the US will resemble many other corrupt and third world nations. Obviously there is alot of stored wealth in the US, big companies, big infrastructure, lots of education, sciences and other fields, the nation will continue to fall down the spiral of economic instability and weakness. I just cant see any gesture of revolutionary spirit in the people, no anger, no passion, no motivation to learn. They just dont care. My interpretation of events are as follows: the US had a enlightenment for 200 yrs, where human and civil rights progressed alongside economic prosperity. The zenith was reached and now the decline. Many libertarians have this hope that there will be a enlightenment. Alex Jones believes this with all his heart, that the american people are waking up. Some are, but not nearly enough for true change. The future is going to suck, and our types will continue to be ignored.

Conclusion: personal preparation and connections with like minded people is the key. Very few will come on board. Tyranny will be the future, until the next major enlightenment. We are going through another phase of tyranny, as it has existed throughout human history. The people revolted and the elites adjusted and took back the power. Now the people have to adjust and revolt again. This will probably take a looong loooong time, so dont get frustrated.

 

 

 

 

 

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Re: On Deficits And Debt-Financed Government

Thanks, BMT.

Yes, there is a good possibility that this is going to be long and drawn out, but waiting is not a solution in my book. Being prepared and realigning myself are the only way. If people don't rise up, I will be able to keep myself and those around me better off. If things do fall apart, I will have far more credibility and have more to offer by setting an example myself.

I don't want to get into a "this time it's different" argument, but I do think there's a chance that oil declines could spark some massive changes. There are a number of reasons to suggest that when the global oil decline starts, it could proceed quite abruptly. This might be all it takes. Then again you are correct in saying there is a *deeply* entrenched sense of learned helplessness and entitlement-demanding mentality in this country. This is truly the clash of  Titans on a colossal scale. On the one hand, peak oil, hardcore insolvency, and rampant corruption demanding change while on the other a multi-generational psychology of helplessness, dullness, and progressively lower expectations further bolstering the status quo.

At least we live in interesting times. My grandkids will sure have some interesting history books.

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Re: On Deficits And Debt-Financed Government

JAG - you're right, KD wrote the following:

"Yes, managed improperly such a path runs the risk of a hyperinflationary debacle similar to Weimar or Zimbabwe...There are transition details that I will outline in future Tickers."

Thanks for opening this can of worms as it must be discussed.

I'm not sure what problems he foresees but I'm anxious to listen to his suggestions on how the transition should be handled.  In the past he has been against the idea so I suspect he is still in the discovery stage and will be careful to discipline how the money is used.  The sequence is also important though not complicated.  

For example, Dennis Kucinich and his financial adviser, Steve Zarlenga, have suggested using debt free money to pay for social services.  I don't think this is a good idea as it could spiral out of control within a relatively short time period.  I think the Federal government needs to be kept on a short leash and it may be that Denninger would want the money earmarked for existing debt relief.

My suggestion is to split the creation and distribution of new money.  The Treasury could create all new money and the private sector could continue to distribute most of it in the form of loans. 

In the article, he suggests "Or we can tell the debt merchants - that is, the banks - to get stuffed, and that we will not pay the so-called "existing debt."  He is not very clear here as to which banks he is referring to, but I would hope that he would be very careful and maybe reconsider this part. 

Here is a possible transitional sequence:

  1. Private banks could basically continue on with one exception; all money they lend, if not theirs, should be electronically transferred from the Treasury as interest free loans.  An issuance fee could be charged to provide a revenue stream for the federal government to eliminate income and employment taxes.  In the future, the federal government should pay for itself without creating new money.
  2. State government should have special drawing privileges (through chartered banks) to build and repair infrastructure, fund energy saving programs and alternatives, build mass transit systems.  Debt free and interest free money could be made available.
  3. We owe the private Federal Reserve around $4.5 trillion not including interest.  I would pay this in full but refuse any interest charges.  This would extinguish the debt, it would simply cease to exist.  Yes, this would be deflationary so it should accompany the direct issuance of some new money into circulation through other mechanisms.  The RICO Act should be used to investigate and audit the Fed.  Their assets should be immediately seized pending the investigation outcome.
  4. Intergovernmental debt should be repaid (SS and Medicare, etc) and that money should NOT be extinguished since it was borrowed twice.  Interest should be paid since the lender was actually lending their (our) money.  I think this is basically a zero sum game as far as inflation/deflation as the money already exists.
  5. Foreign and private debt should be repaid with interest as the bonds become due.  Principal repayments could be created as new money but I'm not sure about the interest.
  6. The Federal government should not be allowed to borrow money after we get out of debt, ever again.  Given the new income, they would have a budget to operate within.  There may be times when we would want the federal government to directly spend money into the economy but each event should be passed by congress with a specific reason and an exact time frame - nothing perpetual.
  7. I would consider buying all the mortgages in the country since we are backing them up with our credit guarantee.  I would "prepay" only the principal and reduce the interest payments to 2-5%.  As of 2008, I think residential and commercial mortgages totaled around $14.7 trillion.  If the average duration were 12 years and the interest rate were 4%, then it would provide an interest income of $49 billion a year.  As the principal is repaid, it would be extinguished.
  8. Would the wall street banks that are too big to fail, fail?  Probably, and we should refuse to pay any derivative losses.  In fact we should tax derivatives to end the notational amounts.  This would be good for the country and a bonanza for smaller, local banks.
  9. The Wall Street banks and big box retailers currently hold much of our credit card debt.  Since many on Wall street would not make the cut, this would become a problem.  I would consider buying this debt, interest free, by creating new money and lending it to interested banks to profitably collect via interest or service fees.  Principal payments would be extinguished.  This would provide another source of much needed income.        

I may be going further than Karl but I'm sure he'll catch upCool The important thing to remember is that by taking back our power and constitutional mandate to create our own money; we gain an awesome creative opportunity.  We also cut the international banking shackles in re-exerting our national sovereignty.  Many of the international bankers would be moved to the productive part of the economy by making license plates in prison.

Larry   

 

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Re: On Deficits And Debt-Financed Government

 

Jeff,

Abolishing legal tender laws is in my opinion a better alternative  than handing over the counterfeit machine from Bernanke to Pelosi and hoping it goes "viral"

No American should be forced by their government to accept any money they deem not worthy.      That is respect for private property and true economic liberty.     This will render the Federal Reserve useless,  and bankers would become like any other businessmen , at the mercy of their  customers.

This law  forces U.S. producers   to accept Federal Reserve Notes  even if they knew it is being rapidly debased by bank credit expansion coordinated by the Fed.       And  since they cannot refuse or discount the money,    the only option left is to raise prices.  

Note how International traders  are  quick to discount a currency (over the other currencies)     that is being debased by its central bank. 

http://www.fff.org/freedom/1100a.asp

 

  Americans would be as  merciless in dumping funny money,     no matter who issued it.

 

 

 

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Re: On Deficits And Debt-Financed Government

Larry -

When you are testifying as the new Treasury Secretary, do you think "get stuffed Mr. Chairman" will be an appropriate response during your Congressional Hearing?

You have my vote.

Humor aside, what realistic hurdles and pushback do you see with implementing your 'Transitional Sequence'?  Seems like a big one would be, absent a collapse or a huge system shock, garnering enough public support to oppose Capitol Hill.

I don't think you'd have any trouble getting public support for sweeping change following the collapse we are likely headed for.

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Re: On Deficits And Debt-Financed Government

Interesting stuff.  I don't think we have the luxury of failing then rebuilding.  If we default, I think we will lose our national sovereignty and be forced to take IMF mandated austerity measures that will forever cripple the country.  When we go bankrupt, I don't think anyone will ask what new system we may desire.  I think our demise is just another step in the well plotted path to tyranny and perpetual debt.

Change at the Federal level is very difficult to implement.  If true monetary reform is to be had, it will probably come from the people up through the states.  Once individual states start figuring out that they can be bankers too, I think it will go like dominoes after the first makes the change.  Local politicians will need lots of support and cover from their constituents.  

According to a recent Poll, 79% of Americans think the economy could collapse.  The big question is will enough people figure out that we've been borrowing our own money - bamboozled!  That won't be easy as the corporate media and their controllers, fear this more than anything else.  They will not help to get the word out and will attack the message if it starts happening.  The good thing is that they don't have much credibility.

There is a lot of anger out there and people sense that they are being had, they just don't understand how.  I think the money issue is the common denominator that may pull everyone together in a common cause.

Larry

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Re: On Deficits And Debt-Financed Government

Carl Veritas wrote:

Abolishing legal tender laws is in my opinion a better alternative  than handing over the counterfeit machine from Bernanke to Pelosi and hoping it goes "viral"

No American should be forced by their government to accept any money they deem not worthy.      That is respect for private property and true economic liberty.     This will render the Federal Reserve useless,  and bankers would become like any other businessmen , at the mercy of their  customers.

Carl, respectfully I have to disagree - removing legal tender laws is neither doable or desirable.  If this were to occur, our national currency would instantly plunge.  Much of it's value is in the fact that taxes must be paid in dollars.  And you have another problem...over $57 trillion in private and public debt is contractually bound to be paid in dollars - with the full backing of the people and credit of the united states.

If other currencies became available, what would you buy them with?  If you use existing dollars, you are simply exchanging money with no net gain.  Our approximate $15 trillion money supply (M3) is $42 trillion short of debt (not including interest).  Where will this new money come from? 

How would the federal government get money?  Would they continue to borrow from private banks even though we can create it ourselves for free?  Would you dramatically raise new taxes to prevent any government debt?

The website you linked subscribes to Austrian theories.  They do not recognize our nations sovereign right to create new money so you will not find this key fundamental option available from them.  They cite Lincoln's greenbacks as being a failure which I would argue is totally untrue.

I think you have to look at the problem without preconceived notions from economic theories that don't identify the power of sovereign credit.  If you look at it through Austrian colored glasses, everything will be tinted.

Dogs wrote:

When you are testifying as the new Treasury Secretary, do you think "get stuffed Mr. Chairman" will be an appropriate response during your Congressional Hearing?

I don't think I would say that to Barney Frank, Chairman of the House Financial Services.  He might take it the wrong way and I wouldn't want to accidentally encourage him to pursue a "special freindship."

Larry      

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Re: On Deficits And Debt-Financed Government

 

Larry,

 

No American should be forced by their government to accept ANY money they deem not worthy.

Do you disagree withe above?

 

 

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Re: On Deficits And Debt-Financed Government
DrKrbyLuv wrote:

The website you linked subscribes to Austrian theories.  They do not recognize our nations sovereign right to create new money so you will not find this key fundamental option available from them.

True but what about the specifics of that article, or are you are saying that because that article is on a website that subscribes to Austrian theories, all information contained thereof can be dismissed out of hand? 

DrKrbyLuv wrote:

I think you have to look at the problem without preconceived notions from economic theories that don't identify the power of sovereign credit.  If you look at it through Austrian colored glasses, everything will be tinted.

Larry,

Every time I think I might believe that sovereign money might be a solution to some of our problems, a statements like these comes along and turn me off.  I am sorry but  it is really irritating to get lectured about preconcieved notions from a person that thinks the solution to every problem is sovereign credit.  A closed mind and complete certainty of their own superior ideas seems to be an attribute of all of your economic heros such as Mike Montagne, Byron Dale, Ellen Brown, Bill Still (less so for Bill because I have at least heard some humility from him), ...

Do you ever even consider that the idea of sovereign credit requires the State and the use of force to be implemented?  Is a stateless society completely inconcievable to you?  If so, who has the closed mind?  We are certainly a long way from a stateless society and I am sure that I will not see it in my lifetime (unless heaven forbid, it comes about as a result of a systematic collapse), but I can at least imagine what it might be like.  If a stateless society ever came into being, clearly sovereign credit could not be used as its monetary system, so what might be used? 

I really don't know but at least I know that I am open to suggestions.  Can you really say the same?

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Re: On Deficits And Debt-Financed Government
Carl Veritas wrote:

Larry,

No American should be forced by their government to accept ANY money they deem not worthy.

Do you disagree withe above?

It seems the Austrian's question the State's right to FORCE any money on its citizens and this is largely why they generally prefer a commodity backed money.   Wealth money advocates question any system that does not allow a State to CONTROL its own money and therefore they are generally against commodity money.

Houston, I think we have a problem!  At least we should be able to unite under our shared hatred of Central Banking!

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Re: On Deficits And Debt-Financed Government

Hello all,

Tough questions - let me try to answer some.  First, sovereign credit is not something I thought of; it has been an ongoing premise from true patriots since before the Revolutionary War.  The concept and meaning has dropped out of our national awareness and not by accident.  For example, Benjamin Franklin said:

"The colonies would gladly have borne the little tax on tea and other matters had it not been that England took away from the colonies their money, which created unemployment and dissatisfaction. The inability of colonists to get power to issue their own money permanently out of the hands of George the III and the international bankers was the prime reason for the Revolutionary War."

The term “political economy” was commonly used in the late 18th and 19th centuries to define the science of wealth generation and the natural laws of social prosperity.  More recently the subject of money has been abbreviated and reduced to “economic theories” that diminish the scientific element and exclude the social consequences.

While most sciences expand and move forward towards greater truth and understanding the subject of money has been going in reverse and with it, our society and freedoms. John Adams rightly said that “All the perplexities, confusion and distress in America arise not from defects in their Constitution or Confederation, nor from want of honor or virtue, so much as downright ignorance of the nature of coin, credit and circulation."

I mentioned in another thread that Mary Hobart published a book in 1892 entitled "A Scientific Exposure of the Errors in Our Monetary System, a new Chapter in Political Economy."  Here is a formula from that book:

Let a==the amount of a contract (which is the sum of the principal and interest),  p==the principal, r==the rate per cent, t==the time.

Now p==a at the date the contract is drawn, and p+prt/100==a at the time the contract expires. Quantities that are equal to like quantities are equal to each other. Hence p==p+prt/100 which is impossible.

This formula shows that the contract is impossible, that prt/100 calls for a production of money and cannot be canceled by a production of values. Neither can it be eliminated by a contraction of t, which constantly increases pr/100. This being true of one contract it must be true of any number of contracts with the credit system may contain. This formula solves one of the important problems of the age and is presented to the scientific people of America for inspection.*

* A reward of $500 will be given to the first person who demonstrates this formula to be mathematically false.

The exponential growth of debt was understood and documented over 100 years ago but here we are in 2010 and it is considered by many a CC fallacy like peak oil, though both can be mathematically proven.

The only thing I have added are possible solutions to take us out of the "web of debt."  I agree we should move on to a more "utopian society" but let's first establish a sustainable society.

Larry  

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Re: On Deficits And Debt-Financed Government
Quote:

My longer term inklings and the revisit I had this morning in the NASA thread remind me of my conviction that this system will need to be fully "rebooted" before anything better will come along.

Exactly, and as high a percentage of the people I meet that are already P/Od about something that have no desire to learn more than their narrow view, I feel the reboot will have to be socio-economic chaos to wake them to other possibilities,

I feel we will need to save our families, then our neighborhoods, then our towns and then once some sort of stability is regained (albeit totally different), we can go about restarting the Republic under the Colonial Script Monetary System.

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Posts: 1114
Re: On Deficits And Debt-Financed Government

How about this analogy?

The patient (the world) has a dangerous addiction to heroin (debt money).  This addiction is causing severe economic and physical problems for the patient.  Drug dealers (bankers) are getting rich off the patient while the addiction is draining his bank account (world savings) and slowly killing him (world economy).

It has been suggested that methodone (sovereign credit) be used to break the patients addiction but there seems to be some dispute in the medical community as to how to go about it.  Dr. KrbyLuv suggests a long term mananged switch from heroin to methodone and for the patient to remain under doctor supervision on methodone forever.  Dr. KrbyLuv believes that the supposed dangerous side effects effects of methodone (inflation or hyperinflation), either don't exist or can be be avoided with the proper medical management, but Dr. Goes211 is not so sure. 

Dr. Goes211 agrees methodone might be a reasonable option to initially break the patients dangerous addiction but believes that it is in the patients long term interest to move to a more stable state without any addictions.  What that stable state may be is not initially clear and will most likely need to be determined after we see how the patient breaks his initial addiction.

Carl Veritas's picture
Carl Veritas
Status: Gold Member (Offline)
Joined: Oct 23 2008
Posts: 294
Re: On Deficits And Debt-Financed Government

 

Goes 211,

 

You do not need force for men to accept good money            You need it for bad money.

Historically  governments have used legal tender laws to force their citizens to accept debased money.

 

The "economic" argument whereby the state create money out of nowhere to direct  the "right" economic activitiy is a variation of  command economies  espoused by  Karl Marx and John Maynard Keynes.      Ideas that sounded good on paper until the politicians got a hold of them.

 

 

 

 

DrKrbyLuv's picture
DrKrbyLuv
Status: Diamond Member (Offline)
Joined: Aug 10 2008
Posts: 1995
Re: On Deficits And Debt-Financed Government

Carl Veritas wrote:

Abolishing legal tender laws is in my opinion a better alternative  than handing over the counterfeit machine from Bernanke to Pelosi and hoping it goes "viral"

No American should be forced by their government to accept any money they deem not worthy.      That is respect for private property and true economic liberty.     This will render the Federal Reserve useless,  and bankers would become like any other businessmen , at the mercy of their  customers.

My questions regarding legal tender laws were never answered....please provide some response

  1. Carl, respectfully I have to disagree - removing legal tender laws is neither doable or desirable. If this were to occur, our national currency would instantly plunge. Much of it's value is in the fact that taxes must be paid in dollars. And you have another problem...over $57 trillion in private and public debt is contractually bound to be paid in dollars - with the full backing of the people and credit of the united states.
  2. If other currencies became available, what would you buy them with? If you use existing dollars, you are simply exchanging money with no net gain. Our approximate $15 trillion money supply (M3) is $42 trillion short of debt (not including interest). Where will this new money come from?
  3. How would the federal government get money? Would they continue to borrow from private banks even though we can create it ourselves for free? Would you dramatically raise new taxes to prevent any government debt?
  4. The website you linked subscribes to Austrian theories. They do not recognize our nations sovereign right to create new money so you will not find this key fundamental option available from them. They cite Lincoln's greenbacks as being a failure which I would argue is totally untrue.  Can you provide a "non-Austrian" source that characterizes Lincoln's greenbacks as being a failure?

Thanks,

Larry

Carl Veritas's picture
Carl Veritas
Status: Gold Member (Offline)
Joined: Oct 23 2008
Posts: 294
Re: On Deficits And Debt-Financed Government

 

Tell the forum why forced acceptance is necessary  Larry.         Why?

 

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