I was wondering if someone could give me a hand with this guys blog post -
he seems to think that the US Government is not Revenue Constrained -
And can basically print money forever with no downside - he is of the mind that even taxes are theoretically not necessary.
Also he thinks that the USA will never default...
http://pragcap.com/the-concept-of-vertical-and-horizontal-money-creation
Anyone got any thoughts on this?
Thanks
Redmond
It is not revenue constrained... until the dollar goes out of circulation. This is why spending should be attacked rather than taxes. Taxes only matter because they are spent.
So what would lead to the dollar to go out of circulation?
By this guys reaonsing, couldn't the US Federal Government just pay off everyones debt?
That would be monetizing the debt - correct?
And he seems to claim that the US does not owe anyone any money - is this guy a monetarist?
Thanks.
If money inflates too quickly, people won't want to use it. They'll change currencies to Euros or Pesos (lol) but more likely gold. The trick is for the government to keep inflation low enough where its cost of forcing people to use it is low. If everyone just put up with inflation, then yeah the government has unconstrained revenue. But only because in effect everyone is putting up with state confiscation of private property.
Redmond:I was wondering if someone could give me a hand with this guys blog post - he seems to think that the US Government is not Revenue Constrained - And can basically print money forever with no downside - he is of the mind that even taxes are theoretically not necessary. Also he thinks that the USA will never default... http://pragcap.com/the-concept-of-vertical-and-horizontal-money-creation
This theory is known as Chartalism:
http://en.wikipedia.org/wiki/Chartalism
More information can also be found on this thread:
http://mises.org/Community/forums/t/18268.aspx
So effectively they are slowly stealing from us.
That is why the Canadian Government keeps inflation at 2% and it is considered a good thing.
So what is the benefit of this system? Simply that Governments can spend as much as they like? Taking into account Inflation?
And what is the point of a Federal Income tax, if the Money collected does not even pay for any of the programs, and could not ever even come close to paying for the programs?
Redmond:That is why the Canadian Government keeps inflation at 2% and it is considered a good thing.
Redmond:So what is the benefit of this system? Simply that Governments can spend as much as they like? Taking into account Inflation?
Redmond:And what is the point of a Federal Income tax, if the Money collected does not even pay for any of the programs, and could not ever even come close to paying for the programs?
The reason they use so many methods is because its harder to see the full scope of their operations if we're nickle-dimed a thousand times, versus if they did it all through inflation. If they did that, the monetary base would depreciate by 40%/year and it would be insanely obvious how large government expenditures were.
Modern economists think that inflation is needed to keep pace with growth. They are terrified of deflation because they associate it with depressions. There is a lot of Austrian literature countering this assumption
So this is why they have the large economic meetings and call for Austerity or spending together - right? They wish to inflate and deflate in unison so it seems like no one country is going down the tubes - at least in an obvious way.
I gather from my readings that the fear of deflation stems from the great depression and FDR's misguided attempts to keep prices and wages high.
Funnily enough, I met an economist a few weeks ago who had no idea what caused inflation.
Me: what causes inflation
him: higher prices
me: what causes higher prices
him: inflation.
Basically he had no idea.
i'll be back later gotta hit work.
Redmond:So this is why they have the large economic meetings and call for Austerity or spending together - right? They wish to inflate and deflate in unison so it seems like no one country is going down the tubes - at least in an obvious way.
Redmond:I gather from my readings that the fear of deflation stems from the great depression and FDR's misguided attempts to keep prices and wages high.
I view inflation not only as a tax, but as sort of like running a race on a treadmill that keeps moving you back. People who aren't invested in money aren't pushed back, but folks who live paycheck to paycheck are.
So you need a central bank to keep the fractional reserve ratio about the same so that banks can inflate safely.
Interesting point - Canadian Banks have absolutely no reserve requirements. The can be leveraged 100% - What would I ask my banker? what are your cash reserves? I want to stump them.
We have 6 Major Banks in Canada + assorted credit unions etc.
Well here is another interesting point - as well, the current policy of the central banks has also had the effect of pushing investment into the Stock Market.
If someone has retired, and wants to get a return on their retirement account, they pretty much have only one choice - stocks - as all of the "safe" investments have a very low return - Prime + 1 or .5%
OUr governments deal with that second aspect by raising the minimum wage rate - "Adjust for cost of living increase"...
Just because they can doesn't mean its a good idea. Reserves are kept in order to meet demand for withdrawls. Whether a reserve requirement is mandated or not, failing to have enough on hand to keep up with demand is a death sentence, even with nets like the FDIC.
So this is why they have the large economic meetings and call for Austerity or spending together - right?
It would be closer to the truth that they don't want any counter-examples springing up anywhere that debunk their system in plain view for all the world to witness. It makes it less obvious that they are wrong if all others do the same and get the same lousy result. No pesky loose-ends like Austrians pointing out that x didn't spend and turned out best.
Redmond: So you need a central bank to keep the fractional reserve ratio about the same so that banks can inflate safely. Interesting point - Canadian Banks have absolutely no reserve requirements. The can be leveraged 100% - What would I ask my banker? what are your cash reserves? I want to stump them.
You think you can just go to any business and ask about its practices? How exactly is that going to stump them even if they answer?
Redmond:What would I ask my banker? what are your cash reserves? I want to stump them.
That may not be a good idea.
If you want to check the 'reserve' position of a particular bank then you could easily check the bank's balance sheet. Alternatively if you wanted to check total 'reserves' for the banking system in Canada, then check the Bank of Canada's balance sheet.