Economic Policy Journal: Utter Nonsense


There are times that one looks to bad reporting as an accident, and then there are times when one has to call it what it appears to actually be — hacksterism:

The title over at EPJ is “Libertarian Party Greenbacker Alert” and the first actual sentence from Robert is:

Still is very confused about economics if he thinks the government can just print money (or what he calls “U.S. notes”) to pay off its debt, without causing serious inflation, if anyone would accept the notes in the first place.

Oh really?  As opposed to “borrowing” money you have no intention of ever repaying, nor any mathematical ability to pay?

Never mind that Robert doesn’t understand Bill’s position and didn’t bother to ask him first before publishing that nice little hit piece, nor did he reach out to anyone in the campaign committee (including me) who happens to know what his position actually is.  I would have been happy to explain it in as much detail as Robert would like (and so, I suspect, would Bill) and that offer remains on the table and has been communicated to Robert.

But let’s presume for a moment that the charge “as leveled” is true, although it’s not, and contrast it with what we’ve had for the last 30 years.  We’ll use my favorite chart again:

Borrowing money against nothing but the promise that the citizens will be wage slaves in the future in amounts that cannot possibly be paid along with escalating expenditures (e.g. Medical care in the US Federal Budget going up 9+% annually since 1980!) isn’t identical in form, substance and effect to unbacked emission of money in an uncontrolled fashion and thus doesn’t produce inflation?

The hell it’s not.  In fact it’s even worse — from a mechanical perspective what has been done is equivalent to issuing a naked short on the currency of the United States!

Evidence?  Right here:

That’s not inflation eh?  Hmmm… the actual peak was in roughly 2000, which would mean we actually saw about 14% inflation.  Then we rattled around for 10 more years trying to figure out how to prevent the deflation of that bubble through various forms of scams and frauds (Internet and housing bubble anyone?)

I can find plenty of other examples of course. You could look at debt in the system too – according to The Fed Z1 it was $4.4 trillion all-in — Federal, State, Local, personal, business, etc — in 1980.  Today it’s about $53 trillion, which happens to be about an 8.5% inflation rate annualized.

See, this is the problem with the BS and games — you don’t change the outcome, you just hide the ugly somewhere.  In this case where it was hidden was in a series of Ponzi-style economic bubbles.

If it walks like a duck and quacks like a duck it’s a duck.  In this case since money and credit spend the same monetary inflation has to be measured against money and credit in the system compared to output.  By that standard guess what — we’ve had lots of inflation.

This is the point and purpose of returning the money power to Congress, incidentally, beyond the Constitutional imperative.  The Ponzi games all come about because Congress wishes to overspend — that is, it wants to make political promises but it doesn’t want to pay for them by taxing someone.  To do that it must have someone under the current system to buy all of its new debt at an attractive price.  To do that the banksters must generate monetary velocity so that the pretty primary dealer network can absorb and then regurgitate out into the market the emission of debt paper that Treasury has to spew to fund the overspending.  Corporate America loves this too, at least in the short term, as the trade imbalance that this overspending and credit emission permits allows offshoring production as the capital that drains out of the country is replaced by credit money — not the same, but it spends the same and nobody’s the wiser — at least not up front.

Thus the handmaidens of The Fed, Congress and Wall Street all march along arm in arm patting each other on the back while the common man gets fleeced with Ponzi-style games and does not recognize what’s going on until all the jobs are gone, replaced by slave labor in China, housing prices are jacked to the moon and unpayable and fraudulent mortgages are the only way to “buy” a house.  Stock scams and schemes along with various derivatives products become the final orgy of leverage upon leverage — which is really, when you boil it all down, debt being issued to simply pay the interest on old debt.

In the long run of course this can never work and doesn’t — when the consumer is no longer able to take on more debt they collapse and then government steps in and borrows even more to make up the so-called “demand deficit” and the “monetary authority” (in this case The Fed) plays financial repression games to again prevent the market from revolting and calling down the curtain on the scam.  But there’s no stimulative effect that can come of this, since in order to actually make that stimulus “work” each dollar of additional deficit spending must generate roughly six of economic activity just to be tax-revenue neutral (assuming the government is about 18% of GDP.)  It never is, and thus the hole gets deeper and deeper until finally there is a revulsion for the debt of the nation involved and/or a sovereign default.

Suddenly the truth dawns on everyone at once — that wasn’t money that “filled the hole” in the budget and trade deficits — it was credit and while it spends the same it isn’t the same thing.  One is economic surplus from past labor and the other is a promise to perform labor tomorrow.  The problem of course is that it’s entirely possible — and not even difficult — to promise more than can be performed when tomorrow comes, and invariably that’s exactly what happens.


That’s what’s happening in Greece and the rest of Europe and it is also what will come here if we don’t cut this crap out!

So what if Congress just emitted raw currency, as it is entitled to do under The Constitution?  Why then there would be immediate inflation, and the people would see the damage right up front.  There would be no Ponzi to be blown, as the people would have the harm “in their face” and shortly would, I’d expect, vote those critters out of office.  Heh, there goes the overspending!

Now which is the better system — the one that allows for myriad layers of lies and frauds, not to mention a couple of decades of screwing our youth and the unborn, or the one that exposes the harm immediately and thus has a very nice check and balance against it? 

I say the second. 

How about you?

This, however, is a vision for the future — in other words, it’s an endpoint.  For obvious reasons were we to simply pay off all the debt with issued money in one fell swoop the impact would be insanely disruptive.  But we don’t have to do that — there’s a better way.

Instead, the intent is to run a budgetary surplus, ending new borrowing immediately.  This will mean taking the hard decisions now while we still can instead of pretending we will never have to and that they won’t be imposed on us if we refuse to act on our own.  It is without question that doing so will lead to a short-term economic contraction, and as such repairing our trade, tax, immigration and energy policies along with fixing our medical system must occur at the same time to both blunt the blow where we can and position our nation for the future.

The debt will, in short, be paid down over time from tax receipts.  Until it is, Treasury will have the authority to roll over existing debt, but not issue new debt.  In other words, the budget will run an actual surplus.  To the extent the economy begins to grow once the base adjustment has been taken Treasury can (and will, under Congressional direction) use the privilege of seigniorage to issue currency (as US Notes) in the amount of the economic expansion less the productivity increase, if any.  Some of this will be used to retire more debt while the rest will be used for general spending (above tax revenues), as directed by Congress exactly as the founders intended and authorized in The Constitution.  Over time US Notes will replace Federal Reserve Notes in circulation and they will remain fungible through the transition.

Banks can lend against assets in the ordinary course of business provided the asset is worth more than the loan.  If it’s not they need to go acquire an asset — otherwise known as capital — from someone.  In short, banks should not be permitted to lend against nothing other than a bare promise, because that is inflationary and further it is not their privilege to effectively print money — that privilege belongs to the sovereign!  If a bank wishes to make an unsecured loan it must acquire the capital to be lent first (e.g. by selling stock or bonds in exchange for it.)

In the same vein the statistical data necessary to know where economic balance is with currency and credit must be exposed and calculated in full view of everyone so there are no distortions.  The CPI, in particular, has been ridiculously distorted through both Hedonic Adjustment and monstrosities such as “Owners Equivalent Rent.”  Good policy requires accurate statistics and the only means of stopping these intentional frauds is to expose the entirety of data collection, analysis and methodology to public view at all times.

This change will maintain the purchasing power of the dollar over time and permit the public to keep the benefit of productivity increase (after all, it’s labor that’s working, right?) in the form of a mild deflation — the expected and natural state of all economies.

The national debate over what we want our government to provide in services must be held, and for each of those programs, no matter what they are, we must pay current taxes to fund them, not promise labor to be performed by those not of age and not yet born.

Isn’t this a better view for America than serial ponzi schemes, bubbles and scams at all levels of government and private business?

I think it is, and those who argue otherwise — that the debt-backed system should be maintained — are the ones with the duty to show how the mathematics of exponents make what they propound possible to sustain in the intermediate and longer run.

If they can’t demonstrate sustainability through the hard science of mathematics then these charlatans and their economic claims and policies must be shown the door.

Discussion (registration required to post)