# Re: Fatal Flaw in Logic of the Crash Course?

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• Thu, Feb 19, 2009 - 12:15am

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#### Re: Fatal Flaw in Logic of the Crash Course?

Fujisan,

Sorry for the late reply.  I agree Chris should find some way to address this, even if just with a footnote somehwere, if only to stave off future criticism.  If you leave any kind of opening, someone is bound to take advantage of it, not always for noble purposes.

[quote]

By observing money supply in several CB around the
world, there’s evidence that money supply does indeed increase

But the question is: why is the money supply expanding exponentially? [/quote]

I think the answer to this is simply that in its efforts to stave off inflation, the Fed must increase the money supply to at least keep up with increasing goods and services, which are themselves directly proportional to population growth.  That’s not to say they cannot grow without population growth, or that population growth=increased goods and services, because there are other factors involved.  All else being equal, however, population growth = increased goods and services = need to expand money supply.  It goes without saying that population growth is exponential.

So the real question to me is why the debt per person grows (not must, just grows) exponentially.  I think there are a number of reasons, but none of them would serve as mathematical proof of what we can easilly witness in any CB, fiat-money economy.  Just like your contention about the CC statement, they result in debt expansion, but they are not required parts of the system.

These reasons would include:

1)  Because of imperfect liquidity, debt must be created so that money is available to pay past debt.  This to me is the most important reason I can think of because the example you used to prove the CC statement wrong was contrived precisely so that liquidity would be perfect.  That is, as long as money is moving through the system fast enough, and interest is re-introduced into the economy fast enough, there would technically never be a need to increase the debt.

2)  The Fed has a natural bias toward erring on the inflation side instead of the deflation side.  You alluded to this above, and anyone who understands FRB and our debt-based system can easilly grasp why deflation is the economic equivalent of an  atomic bomb.

3)  Our legislative system is designed to increase spending exponentially.  This is a result of democracy combined with a natural pyramidal societal structure where the "have-lesses" and "have-nots" always outnumber the "haves".  The "have-lesses" and "have-nots" therefore find it in their interests, and have the ability, to out-vote the "haves" in favor of representatives that will help them financially.  Whenever the representatives do not find it politically expedient to tax the "haves" more in order to fund the new "have-less" and "have-not" programs and services, they will resort to borrowing money from the Fed. This is a long-winded and not very eloquent explanation of something that lies at the very core of our problems.  I do not know what the solution here is, but I do know that this bakes debt-expansion right into the design of our system.

Again, I think if Chris wants to address this, a footnote or reference to an in-depth look for those that are interested, would suffice both in addressing potential claims of inaccuracy and in providing a deeper analysis of how the system works.

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