Why the U.S. Need Not Fear a Sovereign Debt Crisis: Unlike Greece, It Is Actually Sovereign

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Why the U.S. Need Not Fear a Sovereign Debt Crisis: Unlike Greece, It Is Actually Sovereign

   by Ellen Brown, Complete article link from Global Research

Last week, a Chinese rating agency downgraded U.S. debt from triple A and number one globally, to “double A with a negative outlook” and only thirteenth worldwide. The downgrade renewed fears that the sovereign debt crisis that began in Greece will soon reach America. That is the concern, but the U.S. is distinguished from Greece in that its debt is denominated in its own currency, over which it has sovereign control.

We did not hear much about “sovereign debt” until early this year, when Greece hit the skids. Investment adviser Martin Weiss wrote in a February 24 newsletter:

“On October 8, Greece’s benchmark 10-year bond was stable and rising. Then, suddenly and without warning, global investors dumped their Greek bonds with unprecedented fury, driving its market value into a death spiral.

“Likewise, Portugal’s 10-year government bond reached a peak on December 1, 2009, less than three months ago. It has also started to plunge virtually nonstop.

“The reason: A new contagion of fear about sovereign debt! Indeed, both governments are so deep in debt, investors worry that default is not only possible — it is now likely!”

So said the media, but note that Greece and Portugal were doing remarkably well only 3 months earlier. Then, “suddenly and without warning,” global investors furiously dumped their bonds. Why? Weiss and other commentators blamed a sudden “contagion of fear about sovereign debt.” But as Bill Murphy, another prolific newsletter writer, reiterates, “Price action makes market commentary.” The pundits look at what just happened in the market and then dream up some plausible theory to explain it. What President Franklin Roosevelt said of politics, however, may also be true of markets: “Nothing happens by accident. If it happens, you can bet it was planned that way.”

That the collapse of Greece’s sovereign debt may actually have been planned was suggested in a Wall Street Journal article in February, in which Susan Pullian and co-authors reported:

“Some heavyweight hedge funds have launched large bearish bets against the euro in moves that are reminiscent of the trading action at the height of the U.S. financial crisis.

“The big bets are emerging amid gatherings such as an exclusive ‘idea dinner’ earlier this month that included hedge-fund titans SAC Capital Advisors LP and Soros Fund Management LLC. . . .

“It is impossible to calculate the precise effect of the elite traders’ bearish bets, but they have added to the selling pressure on the currency—and thus to the pressure on the European Union to stem the Greek debt crisis.

“There is nothing improper about hedge funds jumping on the same trade unless it is deemed by regulators to be collusion. Regulators haven’t suggested that any trading has been improper.”

These sorts of rumors have not been confined to the Greek bond and the euro.  In The Financial Times, Niall Ferguson wrote an article titled “A Greek Crisis Is Coming to America,” in which he warned:

“It began in Athens. It is spreading to Lisbon and Madrid.  But it would be a grave mistake to assume that the sovereign debt crisis that is unfolding will remain confined to the weaker eurozone economies.”

America, he maintained, would suffer a sovereign debt crisis as well, and this would happen sooner than expected. 

“The International Monetary Fund recently published estimates of the fiscal adjustments developed economies would need to make to restore fiscal stability over the decade ahead. Worst were Japan and the UK (a fiscal tightening of 13 per cent of GDP). Then came Ireland, Spain and Greece (9 per cent). And in sixth place? Step forward America, which would need to tighten fiscal policy by 8.8 per cent of GDP to satisfy the IMF.”

The catch is that the U.S. does not need to satisfy the IMF . . . . 

“Sovereign Debt” Is an Oxymoron

America cannot actually suffer from a sovereign debt crisis. Why? Because it has no sovereign debt. As Wikipedia explains:

“A sovereign bond is a bond issued by a national government. The term usually refers to bonds issued in foreign currencies, while bonds issued by national governments in the country’s own currency are referred to as government bonds. The total amount owed to the holders of the sovereign bonds is called sovereign debt.”

Damon Vrabel, of the Council on Renewal in Seattle, concludes:

“[T]he sovereign debt crisis . . . is a fabrication of the Ivy League, Wall Street, and erudite periodicals like the Financial Times of London. . . . It seems ridiculous to point this out, but sovereign debt implies sovereignty.  Right?  Well, if countries are sovereign, then how could they be required to be in debt to private banking institutions?  How could they be so easily attacked by the likes of George Soros, JP Morgan Chase, and Goldman Sachs? Why would they be subjugated to the whims of auctions and traders?  A true sovereign is in debt to nobody . . . .”

Unlike Greece and other EU members, which are forbidden to issue their own currencies or borrow from their own central banks, the U.S. government can solve its debt crisis by the simple expedient of either printing the money it needs directly, or borrowing it from its own central bank, which prints the money. The current term of art for this maneuver is “quantitative easing,” and Ferguson says it is what has so far “stood between the US and larger bond yields” – that, and China’s massive purchases of U.S. Treasuries. Both are winding down now, he warns, renewing the hazard of a sovereign debt crisis.

Market jitters may be a hazard, but if the U.S. finds itself with government bonds and no buyers, it will no doubt resort to quantitative easing again, just as it has in the past – not necessarily overtly, but by buying bonds through offshore entities, swapping government debt for agency debt, and other sleights of hand. The mechanics may vary, but so long as “Helicopter Ben” is at the helm, dollars are liable to appear as needed.

Hyperinflation: A Bogus Threat Today

Proposals to solve government budget crises by simply issuing the necessary funds, whether as currency or as bonds, invariably meet with dire warnings that the result will be hyperinflation. But before an economy can be threatened with hyperinflation, it has to pass through simple inflation; and today the world is struggling with deflation. The U.S. money supply has been shrinking at an unprecedented rate. In a May 26 article in The Financial Times titled “US Money Supply Plunges at 1930s Pace as Obama Eyes Fresh Stimulus,” Ambrose Evans-Pritchard observed:

“The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of institutional money market funds fell at a 37pc rate, the sharpest drop ever.”

So long as workers are out of work and resources are sitting idle, as they are today, money can be added to the money supply without driving prices up. Price inflation results when “demand” (money) increases faster than “supply” (goods and services). If the new money is used to create new goods and services, prices will remain stable. That is where “quantitative easing” has gone astray today: the money has not been directed into creating goods, services and jobs but has been steered into the coffers of the banks, cleaning up their balance sheets and providing them with cheap credit that they have not deigned to pass on to the productive economy.

A true sovereign need not indebt itself to private banks but can simply issue the money it needs.  That is what the American colonists did, in the innovative paper money system that allowed them to flourish for a century before King George forbade them to issue their own scrip, prompting the American Revolution. 

It is also what Abraham Lincoln did, foiling the Wall Street bankers who would have trapped the North in debt slavery through the exigencies of war.  And it is what China itself did successfully for decades, before it succumbed to globalization.  China got the idea from Abraham Lincoln, through his admirer Sun Yat-sen; and Lincoln took his cue from the American colonists, our forebears.  We need to reclaim our sovereign right as a nation to fund the Common Wealth they envisioned without begging from foreign creditors or entangling the government in debt.

We have the sovereign authority to end the financial crisis anytime we want by simply issuing money instead of bonds (debt).  First, we should remove the money making monopoly awarded to the private, for profit, Federal Reserve.

Why didn't we do this in 1933 to end the great depression and avoid national bankruptcy?  Why don't we do it now?

Larry

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Re: Why the U.S. Need Not Fear a Sovereign Debt Crisis: ...

Great article, but I have a hard time believing we can smoothly transition out of the financial crisis by abolishing the Fed and printing our own sovereign money. How can we convert so much private debt to equity without creating significant fears of price inflation? Why would our current external creditors (China, Japan, etc.) hold on to dollar reserves after we decide to pay their debts with freshly printed money? I completely agree that sovereign money (such as the colonists' scrip or Lincoln's greenbacks) is what our nation eventually needs to embrace, but I'm unconvinced we can make that transition without first a severe episode of decomplexificaton and therefore economic depression. All actions have consequences (or every action is followed by an equal and opposite reaction), and our actions to date have served to create an extremely complex economy on the back of borrowed money, impoverishing a large segment of the population in the process.

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Re: Why the U.S. Need Not Fear a Sovereign Debt Crisis: ...

Ashvinp,

Have you ever ran a business?

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Re: Why the U.S. Need Not Fear a Sovereign Debt Crisis: ...
Thomas Hedin wrote:

Ashvinp,

Have you ever ran a business?

No, why? Analogy to the corporate bankruptcy process?

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Re: Why the U.S. Need Not Fear a Sovereign Debt Crisis: ...

I want to address your fears of price inflation.

Can you please correct me if I'm wrong but the only two reasons businesses raise their prices is costs and projected future earnings correct?

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Re: Why the U.S. Need Not Fear a Sovereign Debt Crisis: ...

OK, I've asked this question at least 20 times, and no one pushing the debt-free monetary system has replied to it. 

How does the physical printing of debt-free money (currency inflation) with no means to extinguish it not lead to hyperinflation down the road, especially if growth in the economy and growth in the money supply diverge for some unknown reason or circumstance?

At least with a credit-money system, the money supply is extinguished by repayment of the debt or by default. What piece of the puzzle am I missing here? And if you can't explain it to me, then how are you going to explain it to the masses? And the fear of the masses is not something that should be marginalized with theoretical constructs, btw.

Strabes and/or Larry, please respond.

 

 

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Re: Why the U.S. Need Not Fear a Sovereign Debt Crisis: ...
JAG wrote:

OK, I've asked this question at least 20 times, and no one pushing the debt-free monetary system has replied to it. 

How does the physical printing of debt-free money (currency inflation) with no means to extinguish it not lead to hyperinflation down the road, especially if growth in the economy and growth in the money supply diverge for some unknown reason or circumstance?

At least with a credit-money system, the money supply is extinguished by repayment of the debt or by default. What piece of the puzzle am I missing here? And if you can't explain it to me, then how are you going to explain it to the masses? And the fear of the masses is not something that should be marginalized with theoretical constructs, btw.

Strabes and/or Larry, please respond.

+1,000,000,000,000,000!!!!!!

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Re: Why the U.S. Need Not Fear a Sovereign Debt Crisis: ...
Thomas Hedin wrote:

I want to address your fears of price inflation.

Can you please correct me if I'm wrong but the only two reasons businesses raise their prices is costs and projected future earnings correct?

...and rising taxes, and increased regulations that increase business risk, and government-imposed labor provisions (such as severance pay provisions, insurance provisions, pension fund provisions).  I guess those could all be lumped into "increasing costs", but most business people see distinctions between them.  When raw materials go up, that's a change in a direct cost.  When new regulations force you to raise salaries across the board, that's partially a direct and partially an indirect cost change, depending on the nature of the business.  

Sometimes, rising costs do not result in rising prices.  Instead, they can result in cost-cutting, such as lay-offs, off-shoring, and cutting back on service/product support.  Most governments are experts in promoting all of these actions and then wonder why entire industries have moved out of town.

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Re: Why the U.S. Need Not Fear a Sovereign Debt Crisis: ...

Businesses also raise costs because they can. If market conditions allow, they can raise prices for no other reason than to arbitrarily increase profit. Barrier to entry, market place domination and monopoly are but a few reasons why businesses might raise prices irrespective of costs or projected future earnings.

Sometimes governments do impose regulatory requirements on business that raise operating costs. Some of these costs are unique to government purview, such as taxes and some types of labor regulations. Others are not. Some costs are created by corporations engaging in root cause activity, such as the aforementioned “off shoring”. If a corporation offshores jobs, and exports a large labor component external to a community, the local residents that formerly had these jobs remain in their community for the most part. In many cases, these displaced workers can be absorbed by other businesses who do not offshore. Increasingly, they cannot be absorbed. These workers become net drains to the community, and require the same services for which the tax base can no longer support.

This has a cascading effect, and as more companies offshore, there are fewer and fewer local business to absorb a growing (unemployed) work force. The tax base drops proportionally, and must be amortized over a shrinking headcount of net inflows. This raises taxes and costs to the remaining citizens and businesses that do not participate in offshoring.

This type of cost externalization is not often mentioned in discussions about government encroachment into our lives. Yes, we can do with less regulation, less taxes, less government intrusion, but when are the structural reasons for these effects going be acknowledged and addressed?

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Re: Why the U.S. Need Not Fear a Sovereign Debt Crisis: ...
darbikrash wrote:

Businesses also raise costs because they can. If market conditions allow, they can raise prices for no other reason than to arbitrarily increase profit. Barrier to entry, market place domination and monopoly are but a few reasons why businesses might raise prices irrespective of costs or projected future earnings.

Barriers to entry are usually surmountable as the only real barrier to entry into any market is capital.  However, most barriers are created by the very same government regulations that are supposed to "protect" the citizen/consumer, and instead provide the consumer with fewer choices, higher prices, and lower quality. Some industries are so over-regulated that only the very big boys can play.  Smaller players don't stand a chance as they are not equipped with the teams of lawyers, consultants, and government experts needed simply to comply with and obtain necessary licenses and permits.  The big boys keep slipping Uncle Bens to the lawmakers to make sure those regulations - you know, the ones that are there to protect "you and me", stay in place or are expanded, thereby guaranteeing their closely-held grip on the industry.  

Other industries become very tightly held due to government laws that have little direct intention on said business.  Take the inheritance tax, for example.  If it expires in 2010, as Obama threatens to allow it to do so, small farmers will go bankrupt as heirs will be completely incapable of paying the inheritance tax due.  So what will happen is that small farms will disappear at an even greater pace and large corporations, who do not need to worry about silly things like inheritance, will eventually take over 100% of US farms.  The same thing will happen to your local thriving mechanic or car dealer. They too will succumb to the tax and only national chains owned by unknown shareholders will take over.  

Quote:

Sometimes governments do impose regulatory requirements on business that raise operating costs.

Sometimes?  How about just about every other month?  The US congress alone has passed over 6,000 pages of legislation this year alone.  Consider state, municipal and city legislatures who, while maybe not on the same steroidal warpath to drown America in legislation as our dear congress is, surely have also passed some of their own this year, and the word "some" is simply not even in the ballpark.

 

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Re: Why the U.S. Need Not Fear a Sovereign Debt Crisis: ...

How does the physical printing of debt-free money (currency inflation) with no means to extinguish it not lead to hyperinflation down the road, especially if growth in the economy and growth in the money supply diverge for some unknown reason or circumstance?

At least with a credit-money system, the money supply is extinguished by repayment of the debt or by default. What piece of the puzzle am I missing here?

Thomas Hedin posted this interview with Byron Dale a few days ago.

http://www.peakprosperity.com/forum/them-be-fighting-words/42463

Byron talks about this at length. Its worth the listen.

What matters in the issuance of currency is how it is created. Right now new currency is issued soley by creating debt via usury. So the more currency you 'create' the more debt you 'create'.  To say that the money supply is extinguished by repayment is true but its not the complete equation. In this system you must create more debt/currency next year than you did the previous year or the whole scheme starts to unravel.

Bryon's point was that if currency was created through production not through usury then any currency increase would have to be matched by an increase in production thereby limiting how much 'currency' could be created. Bryon begins this explanation at 35:28 min. into the interview if you are interested. Essentialy his example goes like this; A state bank would issue currency say for road construction the same way they do now by typing it into a keyboard but there would be no usury attatched to it. Then the contractors would be paid in this way but only the exact amount to pay the bill would be created.

This process eliminates the added debt of usury and insures that currency inflation (increase in the money supply) is commensurate with production not debt.

 

 

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Re: Why the U.S. Need Not Fear a Sovereign Debt Crisis: ...

JAG wrote:

How does the physical printing of debt-free money (currency inflation) with no means to extinguish it not lead to hyperinflation down the road, especially if growth in the economy and growth in the money supply diverge for some unknown reason or circumstance?

Hello JAG,

I'll take a stab at answering this question.  First, Ellen Brown wrote in her article:

"So long as workers are out of work and resources are sitting idle, as they are today, money can be added to the money supply without driving prices up. Price inflation results when “demand” (money) increases faster than “supply” (goods and services). If the new money is used to create new goods and services, prices will remain stable. That is where “quantitative easing” has gone astray today: the money has not been directed into creating goods, services and jobs but has been steered into the coffers of the banks, cleaning up their balance sheets and providing them with cheap credit that they have not deigned to pass on to the productive economy."

How do we measure and define inflation?  darbikrash explained that rising prices may or may not be market driven: 

darbikrash wrote:

Businesses also raise costs because they can. If market conditions allow, they can raise prices for no other reason than to arbitrarily increase profit. Barrier to entry, market place domination and monopoly are but a few reasons why businesses might raise prices irrespective of costs or projected future earnings.

And, Farmer Brown added that entire industries were consolidating as the big get bigger while the small are gobbled up by the unfair advantages legislated for large international corporations.  The big players form a cartel (effective monopoly) that enables them to control and regulate various industries.

Farmer Brown wrote:

Some industries are so over-regulated that only the very big boys can play. Smaller players don't stand a chance as they are not equipped with the teams of lawyers, consultants, and government experts needed simply to comply with and obtain necessary licenses and permits. The big boys keep slipping Uncle Bens to the lawmakers to make sure those regulations - you know, the ones that are there to protect "you and me", stay in place or are expanded, thereby guaranteeing their closely-held grip on the industry.

Cartels (monopolies) enable companies to raise prices separate from the traditional forces of supply and demand.  My point is a question; how do you measure inflation?

In measuring inflation, I think we should consider other metrics that better reflect the real economy.  I think unemployment figures are a much better way to measure inflation.  If unemployment is high, like now (+20%), then that is a sign that there is not enough money in the system which would be deflationary.  On the other end of the spectrum, if unemployment dropped to say 4%, then that is a good indication that there is enough money in general circulation.

As mentioned in the article, we are suffering from deflation now and our unemployment is high “US Money Supply Plunges at 1930s Pace as Obama Eyes Fresh Stimulus,” Ambrose Evans-Pritchard observed: “The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of institutional money market funds fell at a 37pc rate, the sharpest drop ever.”

As long as unemployment stays high, I don't think there will be any inflation, at least not in the traditional sense (supply and demand).

Another contributing factor is that our debt based money system is inherently deflationary.  Every day money is destroyed which reduces the amount of money in circulation.  In order to keep the money supply stable, new money must be added to the system at a rate at least equal to the rate of money destroyed.

Larry

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Johnny Oxygen wrote:

What matters in the issuance of currency is how it is created.

Prove that one point and you might be on to something.  Just saying it is not any better than the people that claim that the quantity theory of money explains inflation.  Actually at least the quantity theory of money explanation passes the sniff test.  This statement defies common sense.

Lets look at your example of creating a road.  We all agree that in the current system money is created via loans with interest.  This interest means that the monetary system MUST GROW by at least enough to service the existing debt or bad things start to happen like they are now.  When road is created, it adds to the economies productive capacity but eventually the money that was created for construction is extinguished.  This must put some deflationary pressure as we can now continue to reap the rewards of the road, but their is no additional money in the system.  This deflationary pressure is somewhat balanced by the initial inflationary presure that the interest costs added to the projects price.  These two forces can probably reach an equalibrium at some interest rate, but it also depends upon how productive the final asset is.  If the loan was for consumption, any interest rate is probably going to be too high to balance the costs.

What I don't see is how any equilibrium is reached in a system that creates money and spends it on infrastructure.  Without some sort of negative feedback on too much money creation, the system will surely become unstable and eventually fail.  This is doubly certain when we have a government that is already spending us into oblivion using debt based money.  Can you imagine what their actions would be like if they felt their was no costs to their actions?  If you think we are using a lot resources now, wait until this happens.  It would be a disaster of truly historic proportions.

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Re: Why the U.S. Need Not Fear a Sovereign Debt Crisis: ...
Farmer Brown wrote:

Barriers to entry are usually surmountable as the only real barrier to entry into any market is capital.  However, most barriers are created by the very same government regulations that are supposed to "protect" the citizen/consumer, and instead provide the consumer with fewer choices, higher prices, and lower quality. Some industries are so over-regulated that only the very big boys can play.  Smaller players don't stand a chance as they are not equipped with the teams of lawyers, consultants, and government experts needed simply to comply with and obtain necessary licenses and permits.  The big boys keep slipping Uncle Bens to the lawmakers to make sure those regulations - you know, the ones that are there to protect "you and me", stay in place or are expanded, thereby guaranteeing their closely-held grip on the industry.  

Quote:

Sometimes governments do impose regulatory requirements on business that raise operating costs.

Sometimes?  How about just about every other month?  The US congress alone has passed over 6,000 pages of legislation this year alone.  Consider state, municipal and city legislatures who, while maybe not on the same steroidal warpath to drown America in legislation as our dear congress is, surely have also passed some of their own this year, and the word "some" is simply not even in the ballpark.

 

It is not always the case that simple application of private capital can ease the obstacle of barrier to entry. Technology is often an effective barrier with or without the enforcement of IP. Even for low tech businesses, adequate capital availability is often insufficient to dislodge a large competitor with a declining profit margin in an established industry. A useful example might be a car company. It is unlikely that a competitive car company (as a start up ) could attract sufficient private capital to challenge the established Big Three.

The exception is the government subsidies of capital for the Tesla and Lister electric cars. Without the draw of alternative fuel technology, (and even with it) there is insufficient private capital to fund a multi-billion dollar start up in such a market with established multi-nationals. The risk is too high and the ROI (based on declining margins) is too low.

But I’m off point.

The issue here that I am trying to highlight is to identify the source of the unwieldy regulation, not that it doesn’t exist or that it is somehow beneficial. It is not.

There is a difference between self serving government taxes, regulations and entitlements (such as obscenely large pension funds for government employees) and regulations and legislation imposed on citizens and business by business. It is the corporate initiation and underwriting of these punitive and offensive rules that I am trying to draw attention to. I am making the point that for these cases, the government is a captured intermediary, captured by the corporations that are paying the lobbyists, and funding the campaigns of the legislators that are biasing regulations to benefit the large multi-nationals in the first place. So who is the enemy here?

 

Those that are captured, or those that are doing the capturing?

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Re: Why the U.S. Need Not Fear a Sovereign Debt Crisis: ...

Johnny Oxygen wrote:

What matters in the issuance of currency is how it is created. Right now new currency is issued soley by creating debt via usury. So the more currency you 'create' the more debt you 'create'. To say that the money supply is extinguished by repayment is true but its not the complete equation. In this system you must create more debt/currency next year than you did the previous year or the whole scheme starts to unravel.

This process eliminates the added debt of usury and insures that currency inflation (increase in the money supply) is commensurate with production not debt.

Johnny O, thanks for the fantastic explanation!  I think you hit the key point very concisely...look forward to what others may say and your response to goes211's interesting challenge.

Larry

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Re: Why the U.S. Need Not Fear a Sovereign Debt Crisis: ...

Larry thanks for the reply.

I'm aware that the creation of debt-free money would be tied to production, and this does seem to balance the money supply in the short term. But the problem, as I see it, is that once it's been created, debt-free money will accumulate in the economy over generations. The money supply of future generations will not just consist of the money created with their production, but also include all the money created by the previous generation's production.

For example, lets say the next generation is exactly the same size as the current generation. Now if both generation's production are roughly equal, that means the future generation's money supply will be roughly double the current generation's money supply. Removing velocity from the equation, this means prices will be roughly double for the next generation, or 100% inflation in 20 years time. And what if there is a war or natural disaster that drastically reduces the population and economic production in the future? You could easily have 10 times the amount of money relative to production/goods in that scenario.

Now if you have a means of removing debt-free money from the system, this might be a mute point. But I have yet to read any proposals, other than the removal of money through taxation, on how this might be achieved. Has anyone seen any different proposals for the removal of debt-free money from the money supply? 

The beauty of debt-based money is that it is self-extinguishing, and therefore the money supply is somewhat self-regulating.

Thanks, Jeff

(Edited for clarification)

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Re: Why the U.S. Need Not Fear a Sovereign Debt Crisis: ...

The beauty of debt-based money is that it is self-extinguishing, and therefore the money supply is somewhat self-regulating.

Are you trying to say that it is a beautiful thing that the debt always increases faster than the money supply?

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Re: Why the U.S. Need Not Fear a Sovereign Debt Crisis: ...
Thomas Hedin wrote:

The beauty of debt-based money is that it is self-extinguishing, and therefore the money supply is somewhat self-regulating.

Are you trying to say that it is a beautiful thing that the debt always increases faster than the money supply?

It figures that you would choose to single out that one line and ignore the rest of the argument. Typical Thomas.

But to answer your question, no, I'm not saying that because such a statement ignores the velocity of money in determining the "effective" money supply. The "effective" money supply is actually larger than the debt. Read Steve Keen.

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Re: Why the U.S. Need Not Fear a Sovereign Debt Crisis: ...

But to answer your question, no, I'm not saying that because such a statement ignores the velocity of money in determining the "effective" money supply. The "effective" money supply is actually larger than the debt. Read Steve Keen.

I'm sorry but that simply is not true.  The last time i checked the money supply was around 8 trillion and the total debt was getting close to 60 trillion.  It's obvious that the debt is larger than the money supply.  This is also referred to as the exponential growth of debt.

 

Velocity of money never increases the money supply.  If this Steve Keen guy is saying that he is either without the facts, or purposely trying to deceive you.

 

"It is often stated, in support of the Banking System’s fractional reserve method of creating money that, “It would have been impossible to have the progress of the industrial age using gold for money.” Proponents of fractional reserve banking argue that the gold would not have allowed the expansion of the money supply necessary to fund the Industrial Age.

Economists and others that support bank-created money love to argue that it’s really the ‘velocity of money’ that makes the money supply grow. But, they always forget or neglect to acknowledge that if that statement were true, then increasing the velocity of the gold coinage would have also increased the money supply of gold coinage thereby providing the money supply required to fund the Industrial Age. They never acknowledge the fact that in 1792....................."

For the rest of the article follow the link below.

http://www.wealthmoney.org/articles/The-Industrial-Age.html

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Farmer Brown
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Re: Why the U.S. Need Not Fear a Sovereign Debt Crisis: ...
Thomas Hedin wrote:

But to answer your question, no, I'm not saying that because such a statement ignores the velocity of money in determining the "effective" money supply. The "effective" money supply is actually larger than the debt. Read Steve Keen.

I'm sorry but that simply is not true.  The last time i checked the money supply was around 8 trillion and the total debt was getting close to 60 trillion.  It's obvious that the debt is larger than the money supply.  This is also referred to as the exponential growth of debt.

 

Velocity of money never increases the money supply.  If this Steve Keen guy is saying that he is either without the facts, or purposely trying to deceive you.

 

LOL!

Yes, Steve Keen is out there DECEIVING people!!  How eeeeeevil!!! 

Good grief man!  Why don't you visit Keen's website and read about his models on money, debt, and velocity.  The man is one of 11 economists out of 11,000 that predicted the 2008 crash.  Just maybe he has some insight on things like money.

By the way, debt being larger than the money supply in no way precludes payment of 100% of the debt with that money supply.  If you do not understand why, then ever more reason to study Keen's work.

Productive debt can always be paid back, no matter how much larger than the money supply it is.  As long as it is productive debt, and it produces money flows greater than the flows demanded by interest and principal payments, it can support debt many times larger than the initial loan.  It is hedging debt and moreso, Ponzi debt, that leads to credit bubbles and eventual crashes, cannot be paid back, and eventually results in default or severe devaluation of the currency.  However, economic judgements based solely on the size of debt compared to the size of the money supply are completely meaningless.  It is the kind of debt incurred that matters, and whether or not it leads to productive capacity that determines whether it is sustainable/payable or not.

In any case, do some research and open your mind for once.  This is not the first time I see charges of "deceiver" from you and I've seen worse.  I was also called a "liar" by your mentor and hero, Byron Dale in a thread some months ago.  Real mature there.  Grow up. 

 

 

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Re: Why the U.S. Need Not Fear a Sovereign Debt Crisis: ...

Farmer Brown,

Do you understand that money is destroyed when the principle part of a loan is repaid?

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Re: Why the U.S. Need Not Fear a Sovereign Debt Crisis: ...
Johnny Oxygen wrote:

Thomas Hedin posted this interview with Byron Dale a few days ago.

http://www.peakprosperity.com/forum/them-be-fighting-words/42463

Byron talks about this at length. Its worth the listen.

I finally got around to listening to this.  If you have heard Byron speak before, it covers mostly the same ground. I do think he has a reasonably good understanding of our current system and for that reason alone he is probably worth listening too.  However he did say a couple of things that I considered pretty outrageous. 

At around 27:30 he makes the following statement.

The continental congress, even after they issued the continental currency, they also chartered a bank so they could create money to help fund the war.  Everybody says those continentals got worthless because it was too many of them got printed, well obviously there was not enough of them printed, because they still had to charter a bank to get some more money to finish the war.

Huh?

Another statement that shocked me was at 14:15.

I am not even sure state banks need much reserves.  That, I have never been able to get anybody to..., nobody seems to know the answer to that question or if they do, they will not share the answer with me because I have yet to be able to find out how exactly state banks work their reserves or if the need them.

If this is true, how can you propose a solution like the MTA without knowing how state banks reserve requirements work?

The final thing that bothers me is more his general attitude toward government in the later part of the podcast.  He does admit that government is not innocent in our current problems but wants to put most of the blame on the bankers.  I think his reasoning is that with the current corrupt system, the banks can always buy off the politicians which is basically true.  However his solution is to cut the middle man and effectively give this power directly to those that were corrupted when they only had indirect access to this power.  I just don't understand how this can end in anything but tyranny.

Being from Chicago, where you have single party rule and 3 of the past 8 governors guilty of felonies , I can not even imagine the level of corruption between governments, unions, contractors,... that such as system would create.

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Re: Why the U.S. Need Not Fear a Sovereign Debt Crisis: ...

What a waste of time. When will I ever learn?

Since this is about the fortieth thread pushing the debt-free money hypothesis, maybe all future threads on this topic should be banished to the basement (to borrow from V) until the currency inflation/hyperinflation issue can be addressed satisfactorily. I'm not holding my breath, however.

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Re: Why the U.S. Need Not Fear a Sovereign Debt Crisis: ...
JAG wrote:

What a waste of time. When will I ever learn?

Since this is about the fortieth thread pushing the debt-free money hypothesis, maybe all future threads on this topic should be banished to the basement (to borrow from V) until the currency inflation/hyperinflation issue can be addressed satisfactorily. I'm not holding my breath, however.

LoL

Yep. Time will tell

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Re: Why the U.S. Need Not Fear a Sovereign Debt Crisis: ...
DrKrbyLuv wrote:

JAG wrote:

How does the physical printing of debt-free money (currency inflation) with no means to extinguish it not lead to hyperinflation down the road, especially if growth in the economy and growth in the money supply diverge for some unknown reason or circumstance?

Hello JAG,

I'll take a stab at answering this question.  First, Ellen Brown wrote in her article:

"So long as workers are out of work and resources are sitting idle, as they are today, money can be added to the money supply without driving prices up. Price inflation results when “demand” (money) increases faster than “supply” (goods and services). If the new money is used to create new goods and services, prices will remain stable. That is where “quantitative easing” has gone astray today: the money has not been directed into creating goods, services and jobs but has been steered into the coffers of the banks, cleaning up their balance sheets and providing them with cheap credit that they have not deigned to pass on to the productive economy."

The point is that workers are out of work now because there is excess capacity. Unfortunately, the "productive" economy has been decimated and our present economy is one that is adapted to debt-based money and mal-adapted to a more simple process. I think it is disingenuous for sovereign money advocates to say that we can make the transition without any negative economic consequences, but I agree that the idea is a good one for local economies in the future.

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Re: Why the U.S. Need Not Fear a Sovereign Debt Crisis: ...
Thomas Hedin wrote:

Farmer Brown,

Do you understand that money is destroyed when the principle part of a loan is repaid?

Yep, sure do.  Next question?

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Thomas Hedin
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Re: Why the U.S. Need Not Fear a Sovereign Debt Crisis: ...

 

Thomas Hedin wrote:

 

Farmer Brown,

Do you understand that money is destroyed when the principle part of a loan is repaid?

 

 

Yep, sure do.  Next question?

By the way, debt being larger than the money supply in no way precludes payment of 100% of the debt with that money supply.

Then if you really do understand that the money is destroyed when a the principle part of the loan is repair then why would you ever say what you said earlier?  It's absolutely impossible to borrow yourself out of debt.

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ashvinp
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Re: Why the U.S. Need Not Fear a Sovereign Debt Crisis: ...
Thomas Hedin wrote:

I want to address your fears of price inflation.

Can you please correct me if I'm wrong but the only two reasons businesses raise their prices is costs and projected future earnings correct?

Yes, if demand for their products rises faster than supply, prices will rise. If a bunch of people suddenly wake up with a lot of money and no debt, and they fear that prices are going to rise in the future, then they will spend the money on whatever hard assets they can buy and prices will spiral out of control.

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Thomas Hedin
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Re: Why the U.S. Need Not Fear a Sovereign Debt Crisis: ...

ashvnip,

Are you agreeing with me or disagreeing with me?  I'm not talking about selling stuff at auction where the people can bid up the prices, I'm talking about manufacturing a product.  We'll get into selling later ok?  You're getting a couple steps ahead of the conversation on me.

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Farmer Brown
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Re: Why the U.S. Need Not Fear a Sovereign Debt Crisis: ...
Thomas Hedin wrote:

 

Thomas Hedin wrote:

 

Farmer Brown,

Do you understand that money is destroyed when the principle part of a loan is repaid?

 

 

Yep, sure do.  Next question?

By the way, debt being larger than the money supply in no way precludes payment of 100% of the debt with that money supply.

Then if you really do understand that the money is destroyed when a the principle part of the loan is repair then why would you ever say what you said earlier?  It's absolutely impossible to borrow yourself out of debt.

Thomas,

You really need to read Keen.  There is a good discussion here:

http://www.peakprosperity.com/forum/interest-payment-not-problem/41544?p...

I do  have a question for you: 

If all bank-initiated debt created a corresponding amount of money, and vice-versa (which I believe we both agree with), then the amount of debt and the money stock should always be equal.  Even if, as your side claims, more debt has to be created to pay off existing loans, then according to your own logic, an equal amount of money would also be created in the same moment the additional debt was created. 

If our money stock is less than our debt, by any amount, then your claim that all money is debt can only be true if not all debt is money.  If not all debt is money, then where did it come from?  If you can explain that, then you will have uncovered the real reason for the exponential growth of our debt.

 

 

 

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Thomas Hedin
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Re: Why the U.S. Need Not Fear a Sovereign Debt Crisis: ...

If all bank-initiated debt created a corresponding amount of money, and vice-versa (which I believe we both agree with), then the amount of debt and the money stock should always be equal

Until time and interest kick in on borrowed money.  Then the debt grows but not the money supply.

If our money stock is less than our debt, by any amount, then your claim that all money is debt can only be true if not all debt is money.  If not all debt is money, then where did it come from?

Basicaly we agree here except I don't claim that all debt is money but all money only goes into circulation as a debt to someone.

All money is debt but not all debt is money because once time and interest kick in on borrowed money (the only kind in this system) the debt grows but not the money supply.  This is why we have an approximate money supply of 8 trillion and a total debt of around 60 trillion.

I've wrote keen a simple question that I couldn't find an answer to on his website.  I'm awaiting his response.

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